A trader wishes create a portfolio that replicates the cash flows of an interest rate swap. The positions necessary to replicate the cash flows of a two-year, pay fixed/receive floating Libor-based swap with quarterly payments at an annualized fixed rate of 5% are (all bonds have equal par value):

Group of answer choices

A) buy a two-year fixed coupon bond with quarterly coupon payments at an annualized 5% coupon and short a two-year zero coupon bond.

B) buy a two-year fixed coupon bond with quarterly coupon payments at an annualized rate of 5% and short a two-year, quarterly coupon floating rate bond.

C) short a five-year fixed coupon bond with quarterly coupon payments at an annualized rate of 5% and buy a five-year, quarterly coupon floating rate bond.

D) short a two-year fixed coupon bond with quarterly coupon payments at an annualized rate of 5% and buy a two-year, quarterly coupon floating rate bond.