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Consider the following bonds currently traded in the market. Using this information find the no-arbitrage price of a 5-Year bond with a coupon of 5%.
Consider the following bonds currently traded in the market. Using this information find the no-arbitrage price of a 5-Year bond with a coupon of 5%. Suppose this bond is currently selling for $102 in the market. Is there an arbitrage opportunity? How would you execute this arbitrage?
| Annual Coupon | Maturity in Years | Price | |
| Bond 1 | 8% | 1 | 102.80 |
| Bond 2 | 9% | 2 | 107.25 |
| Bond 3 | 11% | 3 | 116.40 |
| Bond 4 | 6% | 4 | 104.41 |
| Bond 5 | 7% | 5 | 108.03 |
| Bond 6 | 8% | 6 | 113.95 |
| Bond 7 | 10% | 7 | 127.02 |
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