For risk-free rate R_f use YTM of the following 10-year T-bond, prices are taken on 12.10.2022

Maturity	Coupon	Bid	Ask	Yield
11/15/2032	4.125%	104.212	104.212	3.489%

For market risk premium (R_m – R_f), use 6%

Consider the following STRIP Bonds, and calculate the YTM/Spot rates, assuming the settlement date is 12/10/2022:

Maturity	STRIP Price	YTM/spot rate
6/15/2023	96	8.507%
12/15/2023	92	8.696%
6/15/2024	89	8.079%
12/15/2024	85	8.465%
6/15/2025	81	8.794%
12/15/2025	75	10.064%
6/15/2026	70	10.728%
12/15/2026	68	10.122%
6/15/2027	65	10.046%
12/15/2027	63	9.681%
6/15/2028	58	10.411%
12/15/2028	55	10.477%

A.) An insurance company projects claims of $250m, $300m, and $500m, 3, 4, and 5 years later. If the company wants to match the projected liabilities with STRIPs, how much would the strategy cost today? Will the strategy protect the company from cash-flow risk?

B.) Using the above spot rates, what is the price of a 5-year, 4.5% bond? Assume semiannual interest payments. What is the YTM of the 5-year T-bond?

C.) If the 5-year T-bond is selling for 110, is there an arbitrage opportunity?

D.) How much is the arbitrage profit? What are the required trades to exploit the arbitrage opportunity?