Zero-coupon bond has a face value

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A zero-coupon bond has a face value of $210 and matures in 1 year. The rate of return on equally risky assets is 5% (.05). What will its price be today? Suppose that the price were below the number you found. Suppose the price were $195, for example. Describe tge arbitrage opportunity that would exist in this case and find the arbitrage profits. What will be the effect of arbitrage on the price? Can you explain why any price below the one you found will allow arbitrage profits?

Reference no: EM131300262

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