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A 7% annual coupon bond (face value $1,000), with three years left till maturity is selling

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Question;A 7% annual coupon bond (face value $1,000), with three years left till maturity is selling for $986.90.Zero - coupon bonds of 1, 2, 3 years maturity (all with face value of $1,000) sell for $950, $900, $820,respectively. Is this coupon bond properly priced? If not, show an arbitrage transaction to profit $2000(today) from the mispricing.

 

Paper#48997 | Written in 18-Jul-2015

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