You are in charge of the central banks trading desk, and see the below securities and prices on your Bloomberg screen (these are default-free bonds with face values of $100).

1) Assume that the coupon-paying bonds make annual payments. What is the arbitrage-free value of bond C?

Bond Maturity Coupon Rate Price

A 1 year 0% $97.20

B 2 year 0% $97.10

C 3 year 8% ?

2)Assume bond C is currently trading at a price of $100. Outline (preferably with a table) how to structure an arbitrage trade using these bonds. Please assume that 25 bonds of type C are either bought or sold in your answers. Please ensure that the only positive payout occurs at the present time (i.e., at t = 0).