Question
One or more of the financial instruments in the table below are misprices. Complete columns 5, 6, and 7 of the table, indicating which instruments
One or more of the financial instruments in the table below are misprices. Complete columns 5, 6, and 7 of the table, indicating which instruments would be bought and which would be sold to exploit the arbitrage opportunity. Assuming a 360-day year, with no transaction costs associated with buying or issuing bills and bonds, calculate the single round-trip profit based on 1 bond.
Column | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
Instrument | Maturity (day) | Coupon (% p.a.) | Coupon frequency | Yield (% p.a.) | Price ($) | Face value | Buy or sell? |
Bill | 180 | - | - | 6.50 |
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Bill | 360 | - | - | 7.00 |
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Bond | 360 | 8.0 | Semi-annual | 7.78 | 1,002.08 | 1000 |
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