Question: Consider two zero coupon bonds: one has 3 - years to maturity and yields a continuously compounded rate, r ( 0 , 3 ) =

Consider two zero coupon bonds: one has 3-years to maturity and yields a continuously compounded rate, r(0,3)=10%, while the second has 5 years to maturity and yields a continuously compounded rate, r(0,5)=5%. Discuss whether this scenario is possible, and, if not, what arbitrage strategy could be set up to gain from the mispricing.

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