1. Suppose you are given the following features of Bonds A, B, and C.
Price
Yield
Coupon rate
Face
Maturity
Bond A $993.88
9.67%
9.00%
$1,000
1
Bond B $984.42
9.71%
8.00%
$1,000
1
Bond C
3.00%
$1,000
1
1a. If you want to create a synthetic version of Bond C, how many units of Bond A and Bond B would you have to
buy/sell? (20 points)
Quantity of A =
Quantity of B =
1b. What is the arbitrage-free price of Bond C? (10 points)