Question
Assume there are fourdefault-free bonds with the following prices and future cashflows: Cash Flows Bond Price Today($) Year 1($) Year 2($) Year 3($) A 931.06
Assume there are fourdefault-free bonds with the following prices and future cashflows:
Cash Flows
Bond
Price Today($)
Year 1($)
Year 2($)
Year 3($)
A
931.06
931.06
1,000
0
0
B
878.34
878.34
0
1,000
0
C
1 comma 114.82
1,114.82
100
100
1,100
D
833.81
833.81
0
0
1,000
Do these bonds present an arbitrageopportunity? Ifso, how would you take advantage of thisopportunity? Ifnot, whynot?
Do these bonds present an arbitrageopportunity? (Select the best choicebelow.)
A.
No
B.
Yes
C.
Not enough information.
How would you take advantage of the arbitrageopportunity?(Select from thedrop-down menus.)
0
1
10
11
Abond(s),
sell
buy
0
1
10
11
Bbond(s),
buy
sell
0
1
10
11
Cbond(s) and
sell
buy
0
1
10
11
Dbond(s).
This would result in a net profit of $
nothing
. (Round to the nearestcent.)
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