Question
Assume all the following bonds are risk-free and with a par value $100: Bond A: one-year zero with 2% YTM Bond B: two-year zero with
Assume all the following bonds are risk-free and with a par value $100:
Bond A: one-year zero with 2% YTM
Bond B: two-year zero with 3% YTM
Bond C: Three-year zero with 4% YTM
Bond D: three-year 5% annual coupon-paying bond with 4% YTM.
Is there any violation of the No-Arbitrage Principle? If there is, can you develop a strategy to exploit this opportunity?
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Basic Finance An Introduction to Financial Institutions Investments and Management
Authors: Herbert B. Mayo
10th edition
1111820635, 978-1111820633
