A 2-year $1,000 bond pays $60 semi-annual coupons. This bond can be replicated as a portfolio consisting of: A Two $500 zero coupon bonds maturing in 2 years B One $1,000 zero coupon bond maturing in 2 years One $1,060 zero coupon bond maturing in 2 year plus three $60 zeros with maturities at ½, 1, and 1½ years One $1,060 zero coupon bond maturing in 1 year plus four $60 zeros maturing on ½, 1, 1½, and 2 years E No, the arbitrage principle ensures that the market is in equilibrium

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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Question 9
A 2-year $1,000 bond pays $60 semi-annual coupons. This bond can be replicated as a portfolio consisting of:
A
Two $500 zero coupon bonds maturing in 2 years
В
One $1,000 zero coupon bond maturing in 2
years
One $1,060 zero coupon bond maturing in 2 year plus three $60 zeros with maturities at 2, 1, and 12 years
D
One $1,060 zero coupon bond maturing in 1 year plus four $60 zeros maturing on ½, 1, 1½, and 2 years
E
No, the arbitrage principle ensures that the market is in equilibrium
Transcribed Image Text:Question 9 A 2-year $1,000 bond pays $60 semi-annual coupons. This bond can be replicated as a portfolio consisting of: A Two $500 zero coupon bonds maturing in 2 years В One $1,000 zero coupon bond maturing in 2 years One $1,060 zero coupon bond maturing in 2 year plus three $60 zeros with maturities at 2, 1, and 12 years D One $1,060 zero coupon bond maturing in 1 year plus four $60 zeros maturing on ½, 1, 1½, and 2 years E No, the arbitrage principle ensures that the market is in equilibrium
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