Prices of zero-coupon, default-free securities with face values of $1,000 are summarized in the following table:

Suppose you observe that a three-year, default-free security with an annual coupon rate of 10% and a face value of $1,000 has a price today of $1,188.35.

1. Is there an arbitrage opportunity? 2. How would you take advantage of the arbitrage opportunity? 3. This would result in a net profit of _____

Maturity (years) Price (per $1,000 face value) 584110 2 3 $974.48 $908.14