Question
If there are two bonds on the market. Bond A has coupon rate 8%, 10 years to maturity. Bond B has coupon rate 9%, 15
If there are two bonds on the market. Bond A has coupon rate 8%, 10 years to maturity. Bond B has coupon rate 9%, 15 years to maturity. Coupons are paid annually. You find that Bond A is currently traded at 967.19 and Bond B is currently traded at 1041.52. In other words, Bond A is traded with a discount and Bond B is traded with a premium. Can you form an arbitrary strategy using this two bonds.
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| Buy low and sell high. Buy Bond A and short Bond B. | ||
| Borrow from the bank and buy Bond B | ||
| Short Bond A and deposit the money in the bank | ||
| No arbitrage opportunity. |
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Authors: Jack Jones
1st Edition
1545269920, 978-1545269923
