Consider two securities that pay risk-free cash flows over the next two years and that have the current market prices shown here: (Click on the following icon in order to copy its contents into a spreadsheet.) Security B1 B2 Price Today $190 $176 Cash Flow in One Year $200 0 Cash Flow in Two Years 0 $200 a. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $200 in two years? b. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $1,800 in two years? c. Suppose a security with cash flows of $100 in one year and $200 in two years is trading for a price of $260. What arbitrage opportunity is available? a. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $200 in two years? The no-arbitrage price is $. (Round to the nearest dollar.)

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 two securities that pay risk-free cash flows over the next two years and that have the current market prices
shown here: (Click on the following icon
in order to copy its contents into a spreadsheet.)
Security
B1
B2
Price Today
$190
$176
Cash Flow in One Year
$200
0
Cash Flow in Two Years
0
$200
a. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $200 in two years?
b. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $1,800 in two years?
c. Suppose a security with cash flows of $100 in one year and $200 in two years is trading for a price of $260. What
arbitrage opportunity is available?
...
a. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $200 in two years?
The no-arbitrage price is $ (Round to the nearest dollar.)
Transcribed Image Text:Consider two securities that pay risk-free cash flows over the next two years and that have the current market prices shown here: (Click on the following icon in order to copy its contents into a spreadsheet.) Security B1 B2 Price Today $190 $176 Cash Flow in One Year $200 0 Cash Flow in Two Years 0 $200 a. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $200 in two years? b. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $1,800 in two years? c. Suppose a security with cash flows of $100 in one year and $200 in two years is trading for a price of $260. What arbitrage opportunity is available? ... a. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $200 in two years? The no-arbitrage price is $ (Round to the nearest dollar.)
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