Problem 6 106 Consider a bond market that is represented by the payoff matrix A = where cell (i,j) displays the cash flow from bond i at time j and 110 P = | 10 | ? where the ith element of P corresponds to the price of bond i. Assume that coupons are paid annually and there is a year until the next coupon payment and the maturity of the 10% bond. Furthermore' assume that the term structure in this market is flat. a. What should the price of the 6% coupon bond be? b. Consider the following strategy: Buy one unit of the 10 percent bond now. When it matures invest all the proceeds in the second bond and hold until it matures Is this a riskless strategy? Explain your answer c. What should the prices of the bonds be if the term structure is flat at 5%? d. Is the assumption of a flat term structure consistent with the price of 105.5 for the 10% bond and 102 for the 6% bond?