alleryStart learning →If a bond trades off its arbitrage-free value, traders can do what?
AOnly wait for coupon date
BForce the issuer to call it
CReset the face value
DLock in profit via replication
Answer & Solution
Correct answer: D. Lock in profit via replication
Assets with identical cash flows must have the same price, so traders can lock in a risk-free gain until prices adjust.
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