Question
Suppose Treasury STRIPS are traded for maturities out to 4 years, and the spot rates on these zero coupon bonds are shown below. If
Suppose Treasury STRIPS are traded for maturities out to 4 years, and the spot rates on these zero coupon bonds are shown below. If the price of a 4-year 9.6% coupon bond with par=$1,000 is $1,063, can you earn an arbitrage profit? How would you do so and how much profit you can earn? Year Spot rate 1 5% 2 3 4 6% 7% 8% Suppose Treasury STRIPS are traded for maturities out to 4 years, and the spot rates on these zero coupon bonds are shown below. If the price of a 4-year 9.6% coupon bond with par=$1,000 is $1,063, can you earn an arbitrage profit? How would you do so and how much profit you can earn? Year Spot rate 1 5% 2 3 4 6% 7% 8%
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