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(Mark Value = 3) 4. The current annual effective risk-free interest is 5%. You observe that a zero-coupon risk-free bond with a face value of

(Mark Value = 3)

4. The current annual effective risk-free interest is 5%. You observe that a zero-coupon risk-free bond with a face value of 1,000 and a maturity of two years has a price of 910.

Construct an arbitrage portfolio. Assume that you can lend and borrow at the risk-free rate.

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