(Solved by Expert Tutors) can you please help me solve this?All zero coupon bonds<

All zero coupon bonds

have a face value of $100. A one-year zero-coupon bond tradesat $95. A two-year zero-coupon bond trades at $96. A three-year zero-coupon bondtrades at $97. Answer the following questions:
(a) Construct a replicating portfolio from the three zero-coupon bonds above to replicatecash flows of a 7% annual coupon bond with a face value of $100.
(b) What is the equilibrium price of the 7% annual coupon bond given in part (a)?
(c) If the 7% annual coupon bond is trading at a price of $110, show how you canmake an arbitrage profit

 

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Apr 19, 2020

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