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Why the strategy will yield a risk-free profit

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Reference no: EM132666966

You have identified a pure bond arbitrage strategy: bond C is over valued and the replicating portfolio is undervalued. You present your findings to your team. Your boss is worried that the trading strategy involves short-selling bond C which might expose the firm to future cash-outflows. Explain to your boss why the strategy will yield a risk-free profit.

Reference no: EM132666966

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