Question: The following two bonds are available to trade (both with $100 face value). A 1 year 2% coupon bond trades at 102. A 2 year zero coupon bond trades at 99.01.

A) Derive the yield curve.

B) There is a 2 year 1% coupon bond trading at 102. Find the bond short-selling fee (paid in year 1 and 2 as a % of the face value) compatible with no arbitrage.

Thanks in advance!