Treasury strips would produce one synthetic

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What package Treasury STRIPs would produce one "synthetic" 13.5% Debenture? On January 15, 1991, how much would it cost Ms. Samuels to buy the components of one synthetic 13.5% bond using Treasury STRIPs? Is there an arbitrage opportunity? How could Ms. Samuels profit from the relative mispricing of the RJR 13.5% Debenture and the Discount Debentures? What advice might she give to the following of her clients, each of whom does not pay any taxes? Client A already owns the 13.5% RJR Debenture. Client B does not own the 13.5% RJR Debenture. Of what risks should Ms. Samuels advise her clients, if they follow her advice?

Reference no: EM133638033

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