Use the following information about default-risk-free zero-coupon bonds to answer the question below.

Maturity(years)	1	2	3	4	5
Zero rate	5.00%	5.50%	6.00%	6.25%	6.40%

Suppose that a default-risk-free bond (with a face value (FV) of $1000 and 2 years to maturity) paying 5% coupons annually is currently trading at $1000.

Assuming there are no transaction costs and no taxes, what arbitrage opportunity is available?

A.Short sell a 1-year zero coupon bond with a FV of $50 and a 2-year zero coupon bond with a FV of $1050; buy the coupon bond with a FV of $1000.

B.Short sell a 2-year zero coupon bond with a FV of $1050; buy the coupon bond with a FV of $1000.

C.Buy a 2-year zero coupon bond with a FV of $1050; Short sell the coupon bond with a FV of $1000.

D.Buy a 1-year zero coupon bond with a FV of $50 and a 2-year zero coupon bond with a FV of $1050; Short sell the coupon bond with a FV of $1000.

E.No arbitrage opportunity exists.