Bonds - Yields and Interest Rates_Week 7

0431052 1 f3 2 3 find the arbitrage opportunity

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: the arbitrage opportunity: 2-year zero-coupon bond with yield 5% 3-year zero-coupon bond with yield 4% A one-year rate 2 years from now (2 years forward) of 3% (1.04)3 < (1.05)2 * (1.03) - Borrow at 4% for 3 years - Lend at 5% for 2 years and 3% for the third year 2...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online