Question
You are given the following details of three default free government bonds. Assume that one can take long (buy) and short (sell) positions in these
You are given the following details of three default free government bonds. Assume that one can take long (buy) and short (sell) positions in these bonds. CF stands for cash flow.
| Bond | Current price Today | CF Year 1 | CF Year 2 |
| A | 95.24 | 100 | 0 |
| B | 89.85 | 0 | 100 |
| C | X | 70 | 1070 |
Assuming that the current market prices of Bond A and Bond B are correct, then, what should be the current theoretical (fundamental) price of Bond C, as per the no-arbitrage principle, i.e., what is the value of X?
[Do not round-off any numbers. If at all you want to round-off a number, round it off at 8 decimal places.]
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Intermediate Financial Management
Authors: Eugene F. Brigham, Phillip R. Daves
7th Edition
0030333288, 9780030333286
