Consider that on 31/12/2019 the company OldSystems also has the following bonds...
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Consider that on 31/12/2019 the company OldSystems also has the following bonds outstanding (5 different types of bonds: A, X, Y, Z and W), all with the same type of risk and there are no accrued interests:
Bond X | Bond Y | Bond Z | Bond W | |
Time left to maturity (years) | 1 | 2 | 3 | 4 |
Face Value | €100 | €100 | €100 | €100 |
Coupon rate | 0.00% | 0.00% | 5.00% | 0.00% |
Price | 98.0392 | 95.1814 | 105.7509 | 87.1442 |
Compute the arbitrage gain at t = 0 from an arbitrage strategy on which you sell short 38x20 units of Bond Y (for example 5x20 =100, which implies that you sell short 100 units of bond Y).
Note: there are only accepted strategies that generate a payoff > 0 at t=0 and a payoff = 0 for t>0.