Question
Consider the securities shown here that are trading at their respective market prices. The two securities pay risk-free cash flows over the next two years.
Consider the securities shown here that are trading at their respective market prices. The two securities pay risk-free cash flows over the next two years.
Security A= Market prices $857, CF in one year $900, CF in two years 0
Security B= Market prices $181, CF in one year 0, CF in two years $200
Suppose that a security C has cash flows of: 450 in one year and 200 in 2 years and it is trading for a price of $611.
What arbitrage opportunity is available?
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Analysis for Financial Management
Authors: Robert C. Higgins
10th edition
007803468X, 978-0078034688
