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Q7 (4 pts) One-year, two-year, and three-year zero-coupon bonds with $1,000 face values are selling for $950,$900, and $850, respectively. A three-year coupon bond with
Q7 (4 pts) One-year, two-year, and three-year zero-coupon bonds with $1,000 face values are selling for $950,$900, and $850, respectively. A three-year coupon bond with annual coupons of 10% and a face value of $1,000 is selling for $1,100. Is there an arbitrage opportunity? If so, do you need to buy or sell the three-year bond to exploit the arbitrage opportunity? How much can you make per three-year coupon bond that you buy or sell? A. Buy the three-year coupon bond. Can make $20 per three-year coupon bond bought. B. Buy the three-year coupon bond. Can make $40 per three-year coupon bond bought. C. Sell the three-year coupon bond. Can make $20 per three-year coupon bond sold. D. Sell the three-year coupon bond. Can make $40 per three-year coupon bond sold. E. No arbitrage opportunity
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