( ) $ 100 1 95.238 $ 100 2 $ 89 .

1 2 . f (1, 2) .

(Arbitrage) On a market investors can buy and sell:

Bond A maturity: 1 year, zero-coupon, face value: 100, price: 90.

Bond B maturity: 2 years, face value: 1,000, annual coupon: 50, price: 945.

Bond C maturity: 2 years, face value: 1,000, annual coupon: 10%, price: 990. Can you find an arbitrage strategy that has no cost today and will make a profit in 2 years?

(Arbitrage price) The current zero-rates are as follows: z(1) = 3.20%, z(2) = 3.50%, z(3) = 3.85%.

Calculate the arbitrage price of a 3-year bond with $500 face value and 6% coupon.