Suppose there is a 1 5y STRIPS (i e , no coupons) trading at $60 with the par value of $100 Determine if there is an arbitrage opportunity If so, what would be your arbitrage strategy For every unit of the STRIP, how many units of Bond A, B, and C do you need to buy or short What would be the price...

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Suppose there is a 1.5y STRIPS (i.e., no coupons) trading at $60 with the par value of

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Suppose there is a 1.5y STRIPS (i.e., no coupons) trading at $60 with the par value of $100. Determine if there is an arbitrage opportunity. If so, what would be your arbitrage strategy?
For every unit of the STRIP, how many units of Bond A, B, and C do you need to buy or short?
What would be the price of the replicating portfolio?

Posted Date: May 08, 2024 03:33 AM

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Suppose there is a 1.5y STRIPS (i.e., no coupons) trading at $60 with the par value of

Question:

Maturity Bond (in half years) Annual Coupon Bond Price Spot Rate A 1 20% 101.85 8% B 2 20% 96.95 12% C 3 20% 87.70 16% Maturity Bond (in half years) Annual Coupon Bond Price Spot Rate A 1 20% 101.85 8% B 2 20% 96.95 12% C 3 20% 87.70 16%

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