Opportunity is available for investment banking firm

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The yield to maturity (YTM) on 1-year zero-coupon bonds is 5% and the YTM on 2-year zeros is 6%. The yield to maturity on 2-year maturity coupon bonds with coupon rates of 12% (paid anually) is 5.8%.

a) What arbitrage opportunity is available for an investment banking firm?

b) What is the profit on the activity?

Reference no: EM132000975

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