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Bond pricing Suppose a one-year zero-coupon bond costs $95. 1 year from today, a 1-year zero-coupon bond that matures 2 years from today costs $98.
Bond pricing
- Suppose
- a one-year zero-coupon bond costs $95.
- 1 year from today, a 1-year zero-coupon bond that matures 2 years from today costs $98.
- You also observe a two-year zero-coupon bond is selling for $94.5.
- Is there an arbitrage opportunity? If so, how do you exploit it?
Please show all intermidiate steps and final answer and explain any reasoning.
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Case Studies in Finance Managing for Corporate Value Creation
Authors: Robert F. Bruner, Kenneth Eades, Michael Schill
7th edition
007786171X, 77861711, 978-0077861711
