1. () Suppose that we live in a market where we have the following bonds: (a) What is the term structure in this economy? (b) What are the forward rates in this economy? In particular, spell out what rate you can get for an investment at date 1 that matures at date 2 , and for an investment at date 2 that matures at date 3. (c) Suppose that we have a security with the following cash flows: What is the value of this security? (d) How would you replicate the payoffs of the previous security by trading in the bonds given above? Given an explicit description of the units of each bond in the replicating portfolio. (e) If someone was willing to trade the bond for $424.95$425.05 (bid-ask prices), can you create an arbitrage trading on this bond and the three bonds given? 1. () Suppose that we live in a market where we have the following bonds: (a) What is the term structure in this economy? (b) What are the forward rates in this economy? In particular, spell out what rate you can get for an investment at date 1 that matures at date 2 , and for an investment at date 2 that matures at date 3. (c) Suppose that we have a security with the following cash flows: What is the value of this security? (d) How would you replicate the payoffs of the previous security by trading in the bonds given above? Given an explicit description of the units of each bond in the replicating portfolio. (e) If someone was willing to trade the bond for $424.95$425.05 (bid-ask prices), can you create an arbitrage trading on this bond and the three bonds given