Question

1. (Use compounding viel for discounting) A bond with no coupons sells today for $66, but will
pay $85 in two years (its face value). If the one year ask free interest rate is 10%, is arbitrage
possible? What position should you take?

If you don't have the funds to take thus position, what is the highest interest that you can take on a
loan?

If today's price is temporarily at $75, what position should you take? Explain how you would do it.
What is the arbitrage profit?​

Answer 1

Answer:

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Explanation:

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