Question
1. Suppose a security generates the following risk free cash flows: $250, $150 and $350 at the end of the first, second and third years
1. Suppose a security generates the following risk free cash flows: $250, $150 and $350 at the end of the first, second and third years after the issuance. Find the security's fair price at the time of the issue if risk free interest rate is 4%.
2. Suppose the market price of the security from question 1 is in fact 700$. is there arbitrage possible? If "yes", please specify the actions that should be taken to perform the arbitrage and state arbitrage profit.
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The Handbook Of Energy Trading
Authors: Stefano Fiorenzani, Samuele Ravelli, Enrico Edoli
1st Edition
1119953693, 978-1119953692
