Siri Moon, portfolio manager, at BC Investment Management, Ltd., is conducting a training session with Alexa Sun, a junior analyst in the fixed income department. Siri wants to explain to Alexa the arbitrage- free valuation framework used by the firm. Siri presents Exhibit 1, showing a fictitious bond being traded on three exchanges, and asks Alexa to identify the arbitrage opportunity of the bond. Alexa agrees to ignore transaction costs in her analysis. Eurex EUD 103.7956 NYSE Euronext EUD 103.7815 Frankfurt EDU 103.7565 Price Siri shows Alexa some exhibits that were part of a recent presentation. Exhibit 3 presents most of the data of a binomial log-normal interest rate tree fit to the yield curve shown in Exhibit 2. Exhibit 4 presents most of the data of the implied values for a four-year, option-free, annual pay bond with a 2.5% coupon based on the information in Exhibit 3. Year 1 Year o Node 0-0 104.2876 Node 1-2 Year 2 103.2695 104.0168 Year 3 102.3791 102.8442 Year 4 102.5000 102,5000 104.6349 103.2282 103.5448 102,5000 102.5000 102.5000 Siri asks about the missing data in Exhibits 3 and 4 and directs Alexa to complete the following tasks related to those exhibits: Task 1: Test that the binomial interest tree has been properly calibrated to be arbitrage-free. Task 2: Develop a spreadsheet model to calculate path-wise valuation. To test the accuracy of the spreadsheet, use the data in Exhibit 3 and calculate the value of the bond if it takes a path of lowest rates in Year 1 and Year 2 and the second-lowest rate in Year 3. Task 3: Identify a type of bond where the Monte Carlo calibration method should be used in place of the binomial interest rate method. Task 4: Update Exhibit 3 to reflect the current volatility, which is now 15%. (note: Question 1. Based on Exhibit 1, the best action that an investor should take to profit from the arbitrage opportunity is to (note: select buy or sell) on select Eurex, Euronext, or Frankfurt). (note: select buy or sell) on (Note: select Eurex, Euronext, or Frankfurt). Question 2: Fill in blanks in Exhibit 3 and 4. (Note: Round up to the nearest ten thousandths: e.g. 102.51236 => 102.5124.) The Interest rate in Node 2-2 is The Interest rate in Node 3-2 is 9. The Interest rate in Node 3-4 is The Interest rate in Node 4-1 is The Interest rate in Node 4-1 is %. The Interest rate in Node 4-5 is %. The price of the bond in Node 0-0 is The value in Node 1-2 is