Reference no: EM133059707
Suppose you see the following Bond prices in the market:
1) $1,000 for a two year 10% annual coupon bond
2) $44 for a one year pure discount bond with a face value of $50
3) $900 for a year-year pure discount bond with a face value of $1,100
Assume your firm can buy and sell bonds with no transaction costs. Is there an arbitrage opportunity? If so, what is the profit from a trade that creates positive cash flow in year 0 with zero cash flows in years 1 and 2?
Select an answer:
a) No, there is not an arbitrage opportunity. The most any combination of trades with these bonds can earn is -$2.
b) No, there is not an arbitrage opportunity. The most any combination of trades with these bonds can earn is -$56.
c) Yes, there is an arbitrage opportunity. The profit at t=0 is $2.
d) Yes, there is an arbitrage opportunity. The profit at t=0 is $56.
Please show your work.
|
What is negotiated when trading a futures contract
: 1. A trader shorts 20 SPI 200 contracts at 7745 but the market rallies to 7757 before she sells an additional 20 contracts.
|
|
What is the amount of interest for this loan
: The two options accumulate the same amount of interest and require the same number of monthly payments. What is the amount of interest for this loan
|
|
Explain what is a limit order
: 1. Which markets are common to Australia and the developed offshore nations?
|
|
Describe the concept underlying immunization
: Describe the concept underlying immunization, relating duration to the discussion. Discuss the concept of cash matching or on a multiperiod basis, dedication, r
|
|
What is the profit from a trade that creates positive
: Assume your firm can buy and sell bonds with no transaction costs. Is there an arbitrage opportunity? If so, what is the profit from a trade that creates positi
|
|
What was the firm cash flow to creditors
: 1. The 2016 balance sheet of Maria's tennis shop, Inc., showed long term debt of $2.7 million, and the 2017 balance sheet showed long term debt of $2.9 million.
|
|
Different tools used to build and generate queries
: When looking at database queries and the different tools used to build and generate queries, time is a major consideration.
|
|
What is bitcoin
: On January 15th, 2018 Bitcoin was trading on the Coinbase exchange located in San Francisco at a price of US$12,979.87 per Bitcoin.
|
|
Should Beryl Iced Tea continue to rent
: Should Beryl's Iced Tea continue to rent, purchase its current machine, or purchase the advanced machine? To make this decision, calculate the NPV
|