You observe following three financial securities in the market:

• Regular Annuity: Maturity = 5 years, Annual payments in arrears (at the end of a year) = $28.000, Current price = $X.
• Regular coupon bond: Maturity = 5 years, Face value = $1,000.000, Coupon rate = 14.000%, Current price = $962.405.
• Zero-coupon bond: Maturity = 5 years, Face value = $500.000, Current price = $450.340.

What should be the fundamental (theoretical) price of the regular annuity, as per the no-arbitrage principle? In other words, what is the value of X?

(Round-off to at least 4 decimal places.)

[Hints: Draw timelines of each asset. Look at the cashflows and their timings. Can you establish a relationship between the quantity of an annuity, quantity of a zero coupon bonds, and the quantity of a regular coupon bond. Fraction of quantity is fine. Your objective is to match the cashflows and their timings.

2 x 14 = 28 and 2 x 500 = 1000]