Question: d) Bonds C and D both pay annual coupons, both have face values of 100 and both have two years to maturity. Bond C

d) Bonds C and D both pay annual coupons, both have face

d) Bonds C and D both pay annual coupons, both have face values of 100 and both have two years to maturity. Bond C has a coupon rate of 5% and bond D a coupon rate of 2%. Bond C's price is 101.93 and bond D's price is 96.25. Use absence of arbitrage to infer the price of a zero coupon bond with 1 year to maturity and face value 100. (5 marks)

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