What is the arbitrage profit as a percentage of par

Reference no: EM13888875

A 5-year zero coupon bond is stated to yield 10% continuously compounded return for the entire period (holding period return over 5 years) in market A. The same bond is quoted 2% per annum with annual compounding in Market B. Where is the bond cheaper and what is the arbitrage profit as a percentage of Par.

a.	Cheaper in Market A and the arbitrage profit is 0.08934%
b.	Cheaper in Market A and the arbitrage profit is 0.06734%
c.	Both prices are equal; there is no arbitrage
d.	Cheaper in Market B and the arbitrage profit is 0.06734%
e.	Cheaper in Market B and the arbitrage profit is 0.08934%

Reference no: EM13888875

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