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How could you make an arbitrage profit if the coupon

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Reference no: EM132139863

Suppose that a zero-coupon bond that matures in 1 year costs $97 and that a zero-coupon bond that matures in 2 years costs $94.

a) What must be the price of a 2-year coupon bond with a 5% coupon rate? (All face values are $100)

b) How could you make an arbitrage profit if the coupon bond were trading at $100?

Reference no: EM132139863

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