Question
You can buy or sell the following default-free bonds. All bonds mature at Year 3. Their prices today and cash flows at the end
You can buy or sell the following default-free bonds. All bonds mature at Year 3. Their prices today and cash flows at the end of each year are the following: Bond Price CF Year 1 CF Year 2 CF Year 3 A 94 4 4 104 100 6 106 112 12 112 B C 6 12 Being a smart person, you quickly make a simple calculation and take a position to lock in an arbitrage profit of $6 today with no future net cash flows. What is your investment strategy?
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Calculus For Business, Economics And The Social And Life Sciences
Authors: Laurence Hoffmann, Gerald Bradley, David Sobecki, Michael Price
11th Brief Edition
978-0073532387, 007353238X
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