In: Finance
Prices of zero-coupon, default-free securities with face values of $1,000 are summarized in the following table:
Maturity (years) |
1 |
2 |
3 |
Price (per
$1,000 face value) |
$971.11 |
$937.99 |
$903.61 |
Suppose you observe that a three-year, default-free security with an annual coupon rate of 10% and a face value of $1,000 has a price today of $1,182.73. Is there an arbitrage opportunity? If so, show specifically how you would take advantage of this opportunity. If not, why not?