Prices of zero-coupon, default-free securities with face values of $1,000 are summarized in the following table. Maturity (years) 1 2 3 4 Price $982.30 $956.47 $928.60 $897.17 Based on this information, at what price do you expect a $1,000 par value, one-year, zero-coupon, default-free security to trade two years from today?

a) What is the no-arbitrage price of security Z, which pays cash flows of $500 in one year and $1,500 in two years?

b) Suppose that the market price of Z is $1,800. Describe a riskless trading strategy that would allow you to take advantage of this arbitrage opportunity.