The current market price of a two-year 25% coupon bond with a $1,000 face value is $1,219.71  (recall  that  such  a  bond  pays  coupons  of $ 250  at  the  end  of  Years  1  and  2,  and  the principal  of $ 1,000  at  the  end  of  year  2).   The  current  market  price  of  a  one-year  zero-coupon bond with a $50 face value is $44.64.

(a) What must the price of a two-year zero-coupon with a $2,500 face value be in order to avoid arbitrage?

(b)  Suppose the price of the two-year zero-coupon bond with a $ 2,500 face value is only $1,900. Is  there  an  arbitrage  opportunity?   Is  yes,  how  would  you  structure  a  trade  that  has  zero cash-flow in Years 1 and 2 and a positive cash-flow only in year 0 (i.e.  now)?