Prices ofzero-coupon, default-free securities with face values of $1,000 are summarized in the followingtable:

Maturity(years)

Price (Per $1,000 face value 1=$973.79, 2=$940.47, 3=$906.78

Suppose you observe that athree-year, default-free security with an annual coupon rate of 10 % and a face value of $1,000 has a price today of $1,185.63. Is there an arbitrageopportunity? Ifso, show specifically how you would take advantage of this opportunity. Ifnot, whynot?

How would you take advantage of the arbitrageopportunity?

This would result in a net profit of ?