The YTM on 1-year zero-coupon bonds is 5 per cent and the YTM on 2-year zeros is 6 per cent. The YTM on 2-year-maturity coupon bonds with coupon rates of 12 per cent (paid annually) is 6 per cent. What arbitrage opportunity is available for an investment banking firm? What is the profit on the activity? Assume US $ denominated bonds with par value of $1000 for all calculations.
The YTM on 1-year zero-coupon bonds is 5 per cent and the YTM on 2-year zeros is 6 per cent. The YTM on 2-year-maturity coupon bonds with coupon rates of 12 per cent (paid annually) is 6 per cent. What arbitrage opportunity is available for an investment banking firm? What is the profit on the activity? Assume US $ denominated bonds with par value of $1000 for all calculations.
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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The YTM on 1-year zero-coupon bonds is 5 per cent and the YTM on 2-year zeros is 6 per
cent. The YTM on 2-year-maturity coupon bonds with coupon rates of 12 per cent (paid
annually) is 6 per cent. What arbitrage opportunity is available for an investment banking firm?
What is the profit on the activity? Assume US $ denominated bonds with par value of $1000
for all calculations.
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