Assume there are four default-free bonds with the following prices and future cash flows: Do these bonds
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Assume there are four default-free bonds with the following prices and future cash flows:
Do these bonds present an arbitrage opportunity? If so, how would you take advantage of this opportunity? If not, whynot?
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Cash Flows Year 2 Bond Price Today Year 1 $934.58 881.66 Year 3 1000 1000 100 1,118.21 100 1100 1000 839.62
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To determine whether these bonds present an arbitrage opportunity check whether the pricing is inter...View the full answer
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