Price CF CF Bond Today Year 1 Year 2 A 935 1,000 B 800 0 1,000 960 100 1,100 Do the prices of these bonds permit arbitrage, i.e., is it possible to obtain a free lunch by trading in these bonds? If so, how would you take advantage of the opportunity? Also, if a free lunch is available, where would you eat it and what would you order? Note: Throughout these exercises, you will find questions involving arbitrage like this one. While it is always profitable to find arbitrage and to know how to exploit it, the real point of these questions involving arbitrage is not to train you how to trade in such situations. The arbitrage-based questions are to demonstrate how fundamental our valuation approach is. Market prices must converge back to those prices which preclude arbitrage