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Generate an arbitrage profit

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Assume the risk-free interest rate equals 5% and that the price of a risk-free bond that matures one year from today for $1000 equals $950. What transactions today and a year from today will generate an arbitrage profit? What is your arbitrage profit? What changes if the price of the bond equals $940? What about if the price of the bond equals $960?

Reference no: EM132467397

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