The yield to maturity (YTM) on 1-year zero-coupon bonds is 5%, and the YTM on 2-year zeros

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The yield to maturity (YTM) on 1-year zero-coupon bonds is 5%, and the YTM on 2-year zeros is 6%. The YTM on 2-year-maturity coupon bonds with coupon rates of 12% (paid annually)

is 5.8%.

a. What arbitrage opportunity is available for an investment banking firm?

b. What is the profit on the activity?

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Investments

ISBN: 9781259277177

11th Edition

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

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Question Posted: Jul 24, 2024 05:04 AM

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The yield to maturity (YTM) on 1-year zero-coupon bonds is 5%, and the YTM on 2-year zeros

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Investments

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