Question: b) [5 marks] Consider a three-year annuity with an annual payment of 55, which is traded at a price of 132.75. Construct a portfolio of

b) [5 marks] Consider a three-year annuity with an annual payment of 55, which is traded at a price of 132.75. Construct a portfolio of the bonds and the annuity in part a) which has the same payoffs as this three-year annuity. Is there an arbitrage opportunity in the market? If your answer is yes, how many units of each asset you need to buy or sell to earn an arbitrage profit of 10007

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