8.3 A. You are considering two investments from the bonds listed in question 8.2. Show that the cash flows from the following two investments would be identical.

i. 60 units of Bond #1 + 1060 units of Bond #2, and

ii. 1000 units of Bond #3.

B. How many units of Bond #1 and #2 would you need to replicate the cash flows of 1000 units of Bond #4?

C. i. If the yield of Bond #3 is 5.5%, what would it cost to buy 1000 units of Bond #3?

ii. What would it cost to buy 60 units of Bond #1?

iii. From part A. above, infer the value of 1060 units of Bond #2.

iv. What is the value of one unit of Bond #2? Yield of Bond #2?

D. What's the value of 1000 units of Bond #4? Yield?

E. What have you learned about the Law of One Price from questions 8.2 and 8.3?