Fin351 Principle of investment learning exercise; BOND CONCEPTS
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Three zero coupon risk-free discount bonds of one, two and three year term to maturity are selling for, respectively, $950, $890 and $800. What would be the selling price today of a 10% coupon bond of 3 year maturity (maturity value $1,000)?
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Consider a coupon bond, with the current period t = 0 market price $900, with payments:
1 |
2 |
3 |
|
50 |
50 |
1050 |
Discount (zero coupon) bonds of 1, 2 and 3 years maturity (all with maturity value of $1000) sell for respectively, 960, 900, 820 dollars. Is this coupon bond properly priced? If not, design an arbitrage argument to profit by the mispricing.
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