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A risky bond pays $ 1,000 in a year. Suppose the loan rate is 3% and the deposit rate is 3%. Is there an arbitration
A risky bond pays $ 1,000 in a year. Suppose the loan rate is 3% and the deposit rate is 3%.
Is there an arbitration opportunity? If so, determine the bond's non-arbitrage price range (i.e. the price range at which the bond could be traded without creating an arbitrage opportunity). Justifying the answer.
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