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1) A bond promises a risk-free payment of $1000 in one year. The risk-free rate of interest is 3.11% .a) What is the price of

1) A bond promises a risk-free payment of $1000 in one year. The risk-free rate of interest is 3.11%

.a) What is the price of the bond? (1 mark)

B) If the price of the bond is actually $990, what is the arbitrage strategy? Illustrate all cash flows at time 0 andtime 1. (3 marks)

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