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Assume that transaction costs are zero and there is no credit risk in any transaction. Consider the following securities Security (1) is a 1-year zero
Assume that transaction costs are zero and there is no credit risk in any transaction. Consider the following securities
Security (1) is a 1-year zero coupon bond with face value $100. Its price at time zero is $90.
Security (2) is a 2-year zero coupon bond with face value $100. Its price at time zero is $75.
Security (3) is a 3-year zero coupon bond with face value $100. Its price at time zero is $65.
Security (4) is a 3-year 2% annual-pay coupon-paying bond with face value $1000.
What must be the price of security (4)?
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