Question
Consider three securities that pay risk-free cash flows over the next three years and that have the current market prices shown here: Security Name Price
Consider three securities that pay risk-free cash flows over the next three years and that have the current market prices shown here:
Security Name | Price Today ($) | Cash Flow in One Year ($) | Cash Flow in Two Years ($) | Cash Flow in Three Years ($) |
B1 | $92.68 | 100 | 0 | 0 |
B2 | $84.79 | 0 | 100 | 0 |
B3 | $386.09 | 0 | 0 | 500 |
Calculate the no-arbitrage price, or the price that eliminates any arbitrage opportunities, of a new security, B4, that pays risk-free cash flows of $100 in one year and $500 in two years.
The current no-arbitrage price of Security B4 is: (Please round two decimal places)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started