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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?

Top Answer

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

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