What happens when the real life value of cash flows differs from what our analysis says? We can profit! The method is to buy the lower priced one, and sell the higher priced one. Each cash flow will cancel out, except for the period 0 cash flow which will be positive! An example, we sell the cash flows and buy the bonds.

If we buy and sell in this way then we end up having no cash flows in the future, and a profit in period 0.

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