Question: Prices of zero coupon default free securities with face values of 1000

Prices of zero-coupon, default-free securities with face values of $1000 are summarized in the following table:

Suppose you observe that a three-year, default-free security with an annual coupon rate of 10% and a face value of $1000 has a price today of $1183.50. Is there an arbitrage opportunity? If so, show specifically how you would take advantage of this opportunity. If not, whynot?
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  • CreatedAugust 06, 2014
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