Consider three securities that will pay risk-free cash flows over the next three years and that have the current market prices shown here: Security Name Price Today ($) Cash Flow in Cash Flow in Cash Flow in One Year ($) Two Years ($) Three Years ($) B1 $92.42 100 B2 $84.32 100 500 B3 $382.92 Calculate the no-arbitrage price, or the price that eliminates any arbitrage opportunities, of a new security, B4, that pays risk-free cash flows of $500 in one year and $1,000 in three years. The current no-arbitrage price of Security B4 is:
Consider three securities that will pay risk-free cash flows over the next three years and that have the current market prices shown here: Security Name Price Today ($) Cash Flow in Cash Flow in Cash Flow in One Year ($) Two Years ($) Three Years ($) B1 $92.42 100 B2 $84.32 100 500 B3 $382.92 Calculate the no-arbitrage price, or the price that eliminates any arbitrage opportunities, of a new security, B4, that pays risk-free cash flows of $500 in one year and $1,000 in three years. The current no-arbitrage price of Security B4 is:
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Consider three securities that will pay risk-free cash flows over the next three years and that have the current market prices shown here:
This question: 10p
Security
Price Today ($) Cash Flow in
Cash Flow in
Cash Flow in
Two Years ($) Three Years ($)
Name
One Year ($)
B1
$92.42
100
B2
$84.32
100
B3
$382.92
500
Calculate the no-arbitrage price, or the price that eliminates any arbitrage opportunities, of a new security, B4, that pays risk-free cash flows of $500 in one year and $1,000 in three years.
The current no-arbitrage price of Security B4 is:
(round your answer to two decimal places)
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