Suppose there are four zero coupon bonds with maturities of 1, 2, 3, and 4...
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Finance
Suppose there are four zero coupon bonds with maturities of 1, 2, 3, and 4 years, all with nominal 1000 and whose respective prices are 915, 835, 755 and 685.
a. Find the corresponding spot rates.
b. Obtain with the given bonds, the portfolio replicates a bond R with an annual coupon of 10%, nominal 10,000 and maturity 4 years.
c. What must be the price of the R bond so that arbitrage operations cannot be carried out?
d. Can the basic one-year bond be worth 0.90? Find the price of the other basic bonds.
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