Assume you are given the following bonds: Bond A: a 2-year annual annuity that pays...
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Assume you are given the following bonds: ● Bond A: a 2-year annual annuity that pays $500 each year and costs $900 Bond B: a 2-year zero coupon bond with a face value $1000 that costs $850 1.a Assuming no arbitrage, what is the price of a one year zero coupon bond with a face of $1000? 1.b If the price of the zero coupon bond in the market is $975 show how you can make an arbitrage profit Assume you are given the following bonds: ● Bond A: a 2-year annual annuity that pays $500 each year and costs $900 Bond B: a 2-year zero coupon bond with a face value $1000 that costs $850 1.a Assuming no arbitrage, what is the price of a one year zero coupon bond with a face of $1000? 1.b If the price of the zero coupon bond in the market is $975 show how you can make an arbitrage profit
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Related Book For
Financial Theory and Corporate Policy
ISBN: 978-0321127211
4th edition
Authors: Thomas E. Copeland, J. Fred Weston, Kuldeep Shastri
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