Bonds A, B and C are default-free bonds with face values of $100). Assume the coupon-paying bonds make annual
payments. What is the arbitrage-free value of Bond C?
Bond A - Maturity 1 year - Coupon Rate - 0% Price - $97.20
Bond B - 2 years - Coupon Rate - 0% Price $92.10
Bond C - 2 years - Coupon Rate 8% Price = ?
Assume Bond C is currently trading at a price of $100. Assume that you buy 25 bonds C at this price, while selling two A bonds and 27 b bonds. What are the cash flows
of this investment strategy at the initial investment date, at the end of the first year, and at the end of the second year?
Bond A Price = $97.20, Coupon = 0 Maturity = 1 Year Face Value = $100 Face Value / (1 + 1-Year Interest Rate)^1 = Price 1 +... View the full answer