Problema arbitrage financial is offering an investment with

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Reference no: EM13381931

Problem

(a) Arbitrage Financial is offering an investment with the following cash flows:

Year	1	2	3	4
Cash flow	$200	$400	- $100	$500

(note that the cash flows in Years 1, 2, and 4 are positive, and the cash flow in Year 3 is negative.)

You observe the following prices of pure discount (i.e., zero-coupon) bonds, which pay a single cash flow of $100 at maturity:

Price, $	Maturity, years
95.24	1
89.85	2
83.96	3
77.73	4

What is a fair price (to the nearest dollar) for the investment from Arbitrage Financial?

price of investment:

(b) Arbitrage Financial offers another product called a "mystery coupon" bond. This bond has a face value of $1,000 and a maturity of five years. The bond pays an annual coupon, but the amount of the coupon is unknown. However, you know that the price of the bond is $1,052.30, and bonds of similar risk and maturity currently have a yield to maturity of 6.25%. What is the annual coupon payment (to the nearest dollar) on this bond?

Reference no: EM13381931

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