What arbitrage opportunity is available for an investment

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Question - The yield to maturity (YTM) on 1-year zero-coupon bonds is 7% and the YTM on 2-year zeros is 8%. The yield to maturity on 2-year-maturity coupon bonds with coupon rates of 11% (paid annually) is 7.7%.

Required -

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

b. What is the profit on the activity?

Reference no: EM133273662

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