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Unformatted text preview: 2 c) Suppose that the forward rate that you observe in the market is lower than the one you computed in part (b). How would you take advantage of this discrepancy? Explain in detail the transactions that you would conduct and the corresponding cashflows. (40 points). 3 4 Question 2: (30 points) Find the price of a 10% Government coupon bond that pays semiannual coupons, matures in exactly 3 years and 6 months, and face value of $100. The yield to maturity is 8% p.a. compounded semiannually . The bond has just paid its semiannual coupon, hence you need to price it assuming that the first coupon that you will receive is due in exactly 6 months....
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 Spring '10
 jaffe
 Corporate Finance, Forward rate, 3 years, government coupon bond, $82.7849, $95.2381 2

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