Determine as many points as possible in today yield curve

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Suppose that today is 1-Jan-18 and you have the following information on three risk-free bonds as follows:

A zero-coupon bond (pure discount) that matures on 1-Jul-19 is selling today at 98:02.

A 6% bond (that is, pays semi-annually 3% of its face value as coupon) that matures on 1-Jul-19 is selling today at 106:29. The coupon is paid out twice a year, on 1-Jan (not including today) and 1-Jul.

An 8% bond (face value $1000) that matures on 1-Jul-18 is selling today at $1,024. The coupon is paid out twice a year on 1-Jan (not including today) and 1-Jul.

a) Determine as many points as possible in today's yield curve (or term structure of interest rates).

b) Suppose that a bank is offering you a borrowing/lending rate of 0.5% for the last period (i.e. 1- Jan-19, 1-Jul-19). Is there an arbitrage strategy? If so, use $100K as basis and explain what you would do to exploit it and show how much profit you would make.

Reference no: EM132004357

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