Suppose that par value of bonds is 100. The price of a 4-year coupon bond paying coupon annually is 105. The prices of 1-year, 2-year, 3-year and...

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Suppose that par value of bonds is £100. The price of a 4-year coupon bond paying coupon annually is £105.63. The prices of 1-year, 2-year, 3-year and 4-year zero coupon bond are £99.20, £98.50, £97.00 and £95.00, respectively. Is the 4-year coupon bond priced correctly? If not, is it too high or too low? Is there any arbitrage opportunity? If you are an investment banker, what would you do?

Question

Suppose that par value of bonds is 100. The price of a 4-year coupon bond paying coupon annually is 105. The prices of 1-year, 2-year, 3-year and...

  • Written in: 17-Oct-2019
  • Paper ID: 5975089
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DATE ANSWERED

Oct 17, 2019

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