Question: Bonds A, B and C are default-free bonds with face values of $100). Assume the coupon-paying bonds make annual payments. What is the arbitrage-free value

Bonds A, B and C are default-free bonds with face values of $100). Assume the coupon-paying bonds make annual payments. What is the arbitrage-free value of Bond C?

Bond A - Maturity 1 year - Coupon Rate - 0% Price - $97.20

Bond B - 2 years - Coupon Rate - 0% Price $92.10

Bond C - 2 years - Coupon Rate 8% Price = ?

Assume Bond C is currently trading at a price of $100. Assume that you buy 25 bonds C at this price, while selling two A bonds and 27 b bonds. What are the cash flows

of this investment strategy at the initial investment date, at the end of the first year, and at the end of the second year?

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