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liraira [26]
3 years ago
13

The yield to maturity (YTM) on 1-year zero-coupon bonds is 8% and the YTM on 2-year zeros is 9%. The yield to maturity on 2-year

-maturity coupon bonds with coupon rates of 11% (paid annually) is 8.5%.
Required:
a. What arbitrage opportunity is available for an investment banking firm?
b. What is the profit on the activity?
Business
1 answer:
yarga [219]3 years ago
3 0

Answer:

Arbitrage opportunity may exists as the ZCBs selling at different price at same time due to change in their YTM .

The PV of 100 face value zcb with different ytm are different , in this case.

for one year maturity with face value 100 current price = fv/ pv at 8% = 92.59

for Two year maturity with face value 100 current price = fv / Pv at 9% for two years = 84.167 , if the bond holder sell the bond after 1 year only, the price = 91.74 .

a) The arbitrage opportunity exist with buy two bond with face value 100 with maturity of 1 year and face value 110 with maturity of 2 years.

b) profit 0.01 , as difference between PV of both bond at their YTM rate.

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Vladimir [108]

A very safe stock investment that generally attracts conservative investors is called a <u>blue chip</u> stock. the dow 30 is made up of such stocks.

The Dow Jones Industrial Average measures the average cost of 30 selected industrial stocks. This is important because the financial industry uses it to show the direction of the stock market over time.

The Dow Jones Industrial Average includes prices for only 30 companies and is a simple average. - The S&P 500 Stock Index is broader (500 shares) and represents a value-weighted average that gives more weight to the stocks with the largest market capitalization.

The Dow Jones Industrial Average is an index of 30 "blue chip" US industrial companies. The index includes a wide range of companies, from financial services companies to computer companies to retailers, but excludes transportation and utility companies included in another index.

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3 0
1 year ago
koukladina stop deleting my questions and answers. u call urself a moderator yet ur deleting actual questions and answers that a
monitta

Answer:

. tell them XDD

Explanation:

3 0
2 years ago
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The idea that the relationship between a worker and employer is voluntary and can be terminated at any time, by either party, is
kiruha [24]

Answer:

The correct answer is letter "A": employment-at-will doctrine.

Explanation:

The employment-at-will doctrine is an organizational practice in which employers could terminate labor relationships at any moment with no need for explanations and workers as well could cease the relationship without major reason. This practice aimed to avoid lawsuits between employers and workers.

4 0
4 years ago
Martha and Gordon purchased a home for $175,000 six years ago with a 5.5 percent, 30-year $140,000 mortgage. Their home now has
aliya0001 [1]

Answer:

The correct answer is A that is $76,000

Explanation:

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So, it is computed as:

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4 0
4 years ago
On July 1, 20X1, James and Short formed a partnership. James contributed cash. Short, previously a sole proprietor, contributed
Brrunno [24]

Answer:

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3 0
3 years ago
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