1. Consider the following three bonds: Bond A: 10% coupon rate with semi-annual payments, 2 years remaining to maturity, and notional 100. Bond B: 6% coupon rate with semi-annual payments, 2 years remaining to maturity, and notional 100. Bond C: 2% coupon rate with semi-annual payments, 2 years remaining to maturity, and notional 100. Suppose that the respective yields are 7.70%, 8.10%, and 8% semi-annually compounded. (a) Compute the prices of the bonds A, B, and C. (15 marks) (b) Compute the Durations of bonds A, B and C assuming semi-annual compounding. [20 marks) (c) Which bond has the highest and the lowest sensibility to interest rate changes? Justify your answer. [20 marks) (d) Suppose that you can buy or sell any number of bonds above at the prices you found in (a). Find an arbitrage opportunity and determine the net profit. [20 marks]