Problem 15-15 The yield to maturity (YTM) on 1-year zero-coupon bonds is 5% and the YTM on 2-year zeros is 6%. The yield to maturity on 2-year- maturity coupon bonds with coupon rates of 8% (paid annually) is 5.5%. a. What arbitrage opportunity is available for an investment banking firm? The arbitrage strategy is to buy zeros with face values of $ 80 O and $ 1080 and respective maturities of one year and two years. b. What is the profit on the activity? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Profit 2$ 44.04 X each bond
Problem 15-15 The yield to maturity (YTM) on 1-year zero-coupon bonds is 5% and the YTM on 2-year zeros is 6%. The yield to maturity on 2-year- maturity coupon bonds with coupon rates of 8% (paid annually) is 5.5%. a. What arbitrage opportunity is available for an investment banking firm? The arbitrage strategy is to buy zeros with face values of $ 80 O and $ 1080 and respective maturities of one year and two years. b. What is the profit on the activity? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Profit 2$ 44.04 X each bond
Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance
Section: Chapter Questions
Problem 4.8P
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