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There are two zero-coupon bonds below: Consider a 2-year coupon bond C with FV=$100, coupon rate =25%, and price =$138. Is Bond C underpriced/overpriced relative
There are two zero-coupon bonds below: Consider a 2-year coupon bond C with FV=$100, coupon rate =25%, and price =$138. Is Bond C underpriced/overpriced relative to Bonds A and B ? What is the potential arbitrage trading strategy? a. Overpriced; Long 3/22 unit of A; Long 25/22 unit of B; Short 1 unit of C b. Underpriced; Long 3/22 unit of A; Long 25/22 unit of B; Short 1 unit of C c. Overpriced; Long 3 unit of A; Long 25 unit of B; Short 1 unit of C d. Underpriced; Long 3 unit of A; Long 25 unit of B; Short 1 unit of C
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