Question 32 Consider three securities that will pay risk-free cash flows over the next three yearsand that have the current market prices shown here:SecurityPrice Today ($) || Cash Flow inCash Flow inCash Flow inNameOne Year ($) Two Years ($) Three Years ($)В1$92.25100B2$84.011000.B3$380.830.500Calculate the no-arbitrage price, or the price that eliminates any arbitrageopportunities, of a new security, B4, that pays risk-free cash flows of $500 in one yearand $1,000 in three years.The current no-arbitrage price of Security B4 is:(round your answer to two decimal places)

The cash flows of Security B4 can be replicated by buying 5 units of Security B1 and 2 units of…

Consider three securities that will pay risk-free cash flows over the next three years and that have the current market prices shown here: Security Price Today ($) | Cash Flow in Cash Flow in Cash Flow in Name One Year ($) Two Years ($) || Three Years ($) В1 $92.25 100 B2 $84.01 100 B3 $380.83 0. 500

Consider three securities that will pay risk-free cash flows over the next three years and that have the current market prices shown here: Security Price Today ($) | Cash Flow in Cash Flow in Cash Flow in Name One Year ($) Two Years ($) || Three Years ($) В1 $92.25 100 B2 $84.01 100 B3 $380.83 0. 500

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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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 B1 $192 $200 0 B2 $176 0 $200 What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $200 in two years? What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $1600 in two years? Suppose a security with cash flows of $100 in one year and $200 in two years is trading for a price of $260. What arbitrage opportunity is available?
17. Consider two securities that pay risk-free cash flows over the next two years and that have the current market prices shown here: Security Price Today ($) Cash Flow in One Year ($) Cash Flow in Two Years ($) B1 94 0 100 0 B2 85 100 a. What is the no-arbitrage price of a security that pays cash flows of $100 in one year and $100 in two years? b. What is the no-arbitrage price of a security that pays cash flows of $100 in one year and $500 in two years? c. Suppose a security with cash flows of $50 in one year and $100 in two years is trading for a price of $130. What arbitrage opportunity is available?
Consider two securities that pay risk-free cash flows over the next two years and that have the current market prices shown here: (Click on the following icon in order to copy its contents into a spreadsheet.) Security B1 B2 Price Today $190 $176 Cash Flow in One Year $200 0 Cash Flow in Two Years 0 $200 a. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $200 in two years? b. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $1,800 in two years? c. Suppose a security with cash flows of $100 in one year and $200 in two years is trading for a price of $260. What arbitrage opportunity is available? ... a. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $200 in two years? The no-arbitrage price is $ (Round to the nearest dollar.)
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.)
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: 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
You are given the following payoff table showing the possible annual returns of three securities for the year 2019 under different economic conditions. You considering just a single-security investment. Higher Growth Likely Growth Lower Growth Savings Account 6 6 4 Bond 9 12 15 Stock 32 21 -5 Probability 0.20 0.60 ? Required: Explain the meaning of 32 and 12 in the payoff table. Which security would you consider for investment based on the expected return? Which security would you consider for investment based on risk? Advise on the optimum rational decision and explain why?
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 What is the price of a five-year, zero-coupon, default-free security with a face value of $1,000? The price is $ (Round to the nearest cent.) 1 6.10% 2 6.50% (...) 3 6.70% 4 7.10% 5 7.30%
Suppose a stock is currently (time t = 0) worth 100. Further, suppose the one year annually compounded interest rate is 2%, and the two year annually compounded rate is 3%. Find the following:a) The forward price for a forward contract on the stock with maturity year T1 = 1. b) The forward price for a forward contract on the stock with maturity year T2 = 2.c) The forward price for a forward contract with maturity T1 = 1 on a ZCB with maturity T2 = 2.d) The forward price for a forward contract with maturity T1 = 1 on a forward contract on the stock with maturity T2 = 2 and delivery price K = 101.
The promised cash flows of three securities are listed below. If the cash flows are risk-free, and the risk-free interest rate is 4.5%, determine the no-arbitrage price of each security before the first cash flow is paid. (Click on the following icon in order to copy its contents into a spreadsheet.) Security A B C Cash Flow Today (S) 700 0 1,400 The no-arbitrage price of security A is S Cash Flow in One Year ($) 700 1,400 0 (Round to the nearest cent.)
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%
Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return for securities with maturities of two, three, and four years based on the following data. (Input your answers as a percent rounded to 2 decimal places.) 1-year T-bill at beginning of year 1 1-year T-bill at beginning of year 2 1-year T-bill at beginning of year 3 1-year T-bill at beginning of year 4 2-year security 3-year security 4-year security Expected Return Interest Rate 58 78 10% 128

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