# What is the dollar face value of Bond-1 in the RP?

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What is the dollar face value of Bond-1 in the RP?

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Construct a Replicating Portfolio (RP) to replicate a 1.5-year Bond-0 that pays 14.59 percent of coupon per year. The available bonds for replication are a one year zero coupon Bond-1, a 1.5-year Bond-2 that pays 12.59 percent coupon per year, and a 1-year Bond-3 which pays 16.59 percent coupon per year. All the bonds (Bond-0, Bond-1, Bond-2, and Bond-3) have the same face value of \$100 and pay their annual coupons two times a year. Compute an arbitrage trading strategy to generate profits, if any, when the current market prices of the four bonds, respectively, are 108.5993.7102.15 and 112.31.

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1. What is the dollar face value of Bond-1 in the RP?

2. What is the dollar face value of Bond-2 in the RP?

3. What is the dollar face value of Bond-3 in the RP?

4. What is the cost of the RP?

5. What is the arbitrage fair price of Bond-0?

6. Write 1 if Bond-0 is to be held long and 0 if Bond-0 is to be held short in arbitrage trading strategy.

7. Write 1 if Bond-1 is to be held long and 0 if Bond-1 is to be held shortly in an arbitrage trading strategy.

8. Write 1 if Bond-2 is to be held long and 0 if Bond-2 is to be held shortly in an arbitrage trading strategy.

9. Write 1 if Bond-3 is to be held long and 0 if Bond-3 is to be held shortly in an arbitrage trading strategy.

What is the dollar face value of Bond-1 in the RP?

What is the dollar face value of Bond-1 in the RP?

What is the dollar face value of Bond-1 in the RP?

What is the dollar face value of Bond-1 in the RP?

What is the dollar face value of Bond-1 in the RP?

What is the dollar face value of Bond-1 in the RP?

What is the dollar face value of Bond-1 in the RP?