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A risky bond pays $1,000 in a year. Suppose the borrowing rate is 3% and the deposit rate is 3%. Is there an opportunity for
A risky bond pays $1,000 in a year. Suppose the borrowing rate is 3% and the deposit rate is 3%. Is there an opportunity for arbitration? If so, determine the non-arbitration price range of the bond (i.e. the price interval at which the bond could be negotiated without creating an arbitration opportunity). Justify your answer.
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