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Mars2501 [29]
3 years ago
14

A financial analyst learns that the Bank of England has just issued a new bond that promises to pay £1,000 in one year’s time wh

en it matures. If the market interest is 5% per year,
(a) Calculate the no-arbitrage price of the bond.
(b) If the bond is trading for £952.20 at the moment, what trading strategy should
the financial analyst follow?
(c) What do you think will happen to the bond’s price?

Please explain any formulas or theories used, thanks a lot!
Business
1 answer:
Ilya [14]3 years ago
6 0

Answer:

the price will go lower and I know how much it would be

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Answer:

(29,800)

Explanation:

The computation of the financial advantage or disadvantage is shown below:

As we know that

Financial disadvantage = Cost of making - Cost of buying

where,

Cost of making is

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And, the Cost of buying is

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So,

Financial disadvantage is

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Answer:

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