Bond a Pays $10 at the End of Year 1

question 73

Essay

Bond A pays $10 at the end of year 1 and $110 at the end of year 2,bond B pays $5 at the end of year 1 and $105 at the end of year 2,and bond C pays $20 at the end of year 1 and $120 at the end of year 2.If bond A is selling for $100,bond B for $95,and bond C for $105,does the law of one price hold? If not,describe the arbitrage that would restore the law of one price.

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Definitions:

Sodium Ions

charged atoms of sodium, essential for various physiological processes including muscle function and fluid balance.

Positive Charge

An electrical condition that occurs when an atom loses electrons, resulting in a surplus of protons, giving it a net positive electric charge.

Glial Cells

Non-neuronal cells in the central nervous system that support, nourish, and protect neurons.

Cerebral Spinal Fluid

Clear, colorless body fluid found in the brain and spinal cord that acts as a cushion for the brain's cortex, providing basic mechanical and immunological protection to the brain inside the skull.