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Business, 14.06.2020 03:57 pinkpearl2022

The yield to maturity (YTM) on 1-year zero-coupon bonds is 5% and the YTM on 2-year zeros is 6%. The yield to maturity on 2-year-maturity coupon bonds with coupon rates of 10% (paid annually) is 5.7%. a. What arbitrage opportunity is available for an investment banking firm? The arbitrage strategy is to buy zeros with face values of $ and $ , and respective maturities of one year and two years.

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