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Consider three securities that will payrisk-free cash flows over the next three years and that have the current market prices shownhere: Security Name Price Today($)
Consider three securities that will payrisk-free cash flows over the next three years and that have the current market prices shownhere:
Security Name
Price Today($)
Cash Flow in One Year($)
Cash Flow in Two Years($)
Cash Flow in Three Years($)
B1
$92.85
100
0
0
B2
$85.10
0
100
0
B3
$388.22
0
0
500
Calculate theno-arbitrage price, or the price that eliminates any arbitrageopportunities, of a newsecurity, B4, that paysrisk-free cash flows of$500 in one year and$1,000 in three years.
The currentno-arbitrage price of Security B4is:
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