14.The following securities pay risk-free cash flows over the next three years:Cash FlowsSecurity Price Today In 1 YearIn 2 yearsIn 3 YearsB19510000B2B38080900100000100C?200400300D1,075400200600(a) What is the no-arbitrage price of security C?(b) Is security D correctly priced? If so, explain why. If not, demonstrate how you canexploit the arbitrage opportunity.(c) Determine the spot rates (to the nearest 0.01%) and the discount factors for this market.

(a) What is the no-arbitrage price of security C?To find the no-arbitrage price of Security C, we…

Answered: 14. The following securities pay…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.12: Uneven, Or Irregular, Cash Flows

Problem 3ST

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17. Consider two securities that pay risk-free cash flows over the next two years and that have the current market prices shown here: Security Price Today Cash Flow in One Year Cash Flow in Two Years В1 $192 $200 B2 $176 $200 a. What is the no-arbitrage price of a security that pays cash flows of $200 in one year $200 in two years? b. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $1600 in two years? c. Suppose a security with cash flows of $100 in one year and $200 in two years is trading for price of $260. What arbitrage opportunity is available? and a
uestion Consider three securities that will pay risk-free cash flows over the next three years and that have the current market prices shown here: This question: 10p Security Price Today ($) Cash Flow in Cash Flow in Cash Flow in Two Years ($) Three Years ($) Name One Year ($) B1 $92.42 100 B2 $84.32 100 B3 $382.92 500 Calculate the no-arbitrage price, or the price that eliminates any arbitrage opportunities, of a new security, B4, that pays risk-free cash flows of $500 in one year and $1,000 in three years. The current no-arbitrage price of Security B4 is: (round your answer to two decimal places) O Time tv 9 MacBook Air DD DII F10 F9 F8 888 F7 80 F6 F5 F4 F3 esc F2 F1 & * OC
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Assume investors are indifferent among security maturities. Today, the annualized 2-year interest rate is 2.20 percent, and the 1-year interest rate is 2 percent. What is the forward rate according to the pure expectations theory? Group of answer choices 2.25% 2.20% 2.00% 2.40%
D3) The value of a derivative that pays off $100 after one year if a company has defaulted during the year is $5. The value of a derivative that pays off $100 after one year if a company has not defaulted is $97. (a) What is the risk-free rate? (b) What is the risk-neutral probability of default?
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8. Given the following information what must be the risk-free rate of interest (assume the asset is properly priced)? The expected return of the market is 14.25%, the stock's B is.82 and the expected return of the asset is 12.89%. A.5.91% B. 6.69% C. 7.41% D. 8.93%
Assume the zero-coupon yields on default-free securities are as summarized in the following table: in order to copy its contents into a spreadsheet.) Maturity (years) 1 2 3 4 5 Zero-coupon YTM 6.00% 6.40% 6.70% 7.10% 7.40% What is the price of a five-year, zero-coupon, default-free security with a face value of $1,000? (Click on the following icon
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Assume the zero-coupon yields on default-free securities are as summarized in the following table: (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) 1 2 3 4 5 Zero-coupon YTM 4.30% 4.70% 5.10% 5.30% 5.50% What is the price of a five-year, zero-coupon, default-free security with a face value of $1,000 Question content area bottom Part 1 The price is ___$enter your response here.(Round to the nearest cent.)
Assume the zero-coupon yields on default-free securities are as summarized in the following table: (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) Zero-coupon YTM 1 6.30% 2 6.90% 3 7.30% 4 7.70% 5 8.00% What is the price of a three-year, default-free security with a face value of $1,000 and an annual coupon rate of 8%? What is the yield to maturity for this bond? What is the price of a three-year, default-free security with a face value of $1,000 and an annual coupon rate of 8%? The price is $1894.57. (Round to the nearest cent.)
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