You can lend / borrow at the risk-free rate. A Canada Savings Bond with annual...
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Finance
You can lend / borrow at the risk-free rate.
A Canada Savings Bond with annual coupons of $ 30 for 25 years costs $ 1,035.62. Face value is $ 1,000.
There is a 2-year forward contract (immediately after the 2nd coupon) priced at $ 1,020.
What is the price without arbitration of a contract?
a. 989.01
b. 1,000.00
c. 1,015.43
d. 1,033.58
e. 1,056.76
What strategy would you adopt at t = 0 to perform an arbitrage strategy?
a. Long: Bond _________Short: Forward _____ Place at 2.80%
b. Long: Bond _________Short: Forward _____Borrow at 2.80%
c. Long: Forward_______ Short: Bond _______Place at 2.80%
d. Long: Forward _______Short: Bond_______ Borrow at 2.80%
e. Long: Forward, Bond __Short: nothing______Place at 2.80%
What is the arbitrage profit?
a. 0
b. 13.58
c. 32.11
d. 77.50
e. 120.34
Please put detailed answer of how you did it. THANK YOU!
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