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Advantage of the pricing in question

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1. If a pure discount three-year bond sells for $782 and a pure discount four-year bond sells for $733, what is the expected 12-month interest rate in three years time? Both have a face value of $1000.

2. If 12-month interest rates are expected to be 6% in three years time, describe how investors could take advantage of the pricing in question 1. What impact would this have on interest rates?

Reference no: EM132791174

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