You are given the following prices and cash flows associated with bonds. CF stands for cash flow.

Table for Problem 4

Bond	Price Today	CF Year 1	CF Year 2	CF Year 3
A	100.20	10	10	110
B	93.00	100	0	0
C	92.85	5	105	0
D	X	20	20	120

What is the current price of Bond D as per the no-arbitrage principle? In other words, what is the value of X?

[Round-off your final answers to at least four decimal places. For intermediate steps, round-off to at least six decimal places, so that your final answer is as close as possible to mine.]

(On a first attempt, you may find this problem difficult. Please do not be intimidated by such a problem.

Think carefully: How about using Bonds A, B, and C, so that every year we get cash flows as that of Bond D.

Three equations, three unknowns. Simultaneous equation problem.

Then, once you get the quantities of A, B, and C, what must happen to current prices, so that there is no arbitrage opportunity. Enjoy your learning!)