Problem Set on Interest Rate RiskArbitrage OpportunitiesThis problem is meant to show how one would exploit an arbitrage opportunity. Remember that an easy way to find an arbitrage opportunity is to attempt to replicate the cash flows of one security by using the other securities. Also, selling bonds is equivalent to borrowing money. When you sell bonds, you receive the sale price today in exchange for paying the cash flows in the future.You can buy or sell the following riskless bonds. All bonds mature at Year 3. Their prices today and cash flows at the end of each year are the following:\table[[Bond,Price,CF Year I,CF Year 2,CF Year 3],[A,94,4,4,104],[B,100,6,6,106],[C,112,12,12,112]]Being a smart person, you quickly make a simple calculation and take a position to lock in an arbitrage profit of $6 today with no future net cash flows. What is your investment strategy? In other words, how many of each bond do you buy or sell?2. Bonds A, B, C and DConsider the following bonds. In answering the subscyuent questions write down the formulae you use to demonstrate the logic you have used. Don't just calculate numbers in your fancy calculator or spreadsheet. Prices are quoted in decimals and coupon rates are annual percentages.\table[[,Bond A,Bond B,Bond C,Bond D],[Conpon Rate,10%,9%,11%,11%