Based on Exhibits 2 and 3 and using Method 1, the amount (in absolute terms)

by which the Hutto- Barkley corporate bond is mispriced is closest to:

		0.3368 per 100 of par value.
		0.4682 per 100 of par value.
		0.5156 per 100 of par value.
		0.5556 per 100 of par value.

Next, Tatton uses the benchmark yield curve provided in Exhibit 2 to consider arbitrage opportunities of both option-free corporate bonds and corporate bonds with embedded options. The benchmark bonds in Exhibit 2 pay coupons annually, and the bonds are priced at par. Exhibit 2 Benchmark Par Curve Maturity (years) Yield to Maturity (YTM) 3.0% 4.0% 5.0% Tatton then identifies three mispriced three-year annual-pay bonds and compiles data on the bonds (see Exhibit 3). Exhibit 3 Market Data of Annual-Pay Corporate Bonds Company Coupon Market Price Yield Embedded Option? 3% 5.6% No Hutto-Barkley Inc. Luna y Estrellas Intl. Peaton Scorpio Motors 94.9984 88.8996 83.9619 4.0% 6.0%