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The yield to maturity (YTM) on 1-year zero-coupon bonds is 5% and the YTM on 2-year...

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 8% (paid annually) is 5.5%.

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



b. What is the profit on the activity? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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