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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 when it matures. If the market interest is 5% per year, (a) Calculate the no-arbitrage
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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 when 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!

User Aydan
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1 Answer

4 votes

Answer:

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

User Tabaluga
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