All zero coupon bonds have a face value of $100. A one-year zero-coupon bond trades at $95. A two-year zero-coupon bond trades at $96. A three-year zero-coupon bond trades at $97. Answer the following questions:

(a) Construct a replicating portfolio from the three zero-coupon bonds above to replicate cash flows of a 7% annual coupon bond with a face value of $100.

(b) What is the equilibrium price of the 7% annual coupon bond given in part (a)?

(c) If the 7% annual coupon bond is trading at a price of $110, show how you can make an arbitrage profit.