Bond_Replication

Bond_Replication - ondReplication B 1...

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Bond Replication      1     The Federal Government is planning to issue a new 2-year bond which pays  annual coupons of $260 and has a face value of $4,000. They plan to offer this  bond at a price of $4,050. The government has asked you to check if this new  bond is priced fairly, or whether or not a possible arbitrage opportunity exists. There are currently two other Government of Canada bonds trading in the  marketplace: Bond 1: 4% annual coupon, face value = $1,000, 2 years to maturity, trading at  97.593 Bond 2: 6% annual coupon, face value = $1,000, 2 years to maturity, trading at  101.671 Bond Replication 2 The Federal Government is planning to issue a new 2-year bond which pays  annual coupons of 9% and has a face value of $5,000. What should the price of  this bond be? There are currently three other Government of Canada bonds trading in the 
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This note was uploaded on 02/19/2011 for the course COMM 298 taught by Professor Freedman during the Spring '09 term at UBC.

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Bond_Replication - ondReplication B 1...

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