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1. Assume you are given the following bonds: Bond A: a 2-year annual annuity...

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1. Assume you are given the following bonds: Bond A: a 2-year annual annuity that pays $500 each year and costs $900 Bond B: a 2-year zero coupon bond with a face value $1000 that costs $850 1.a Assuming no arbitrage, what is the price of a one year zero coupon bond with a face of $1000? 1.b If the price of the zero coupon bond in the market is $975 show how you can make an arbitrage profit

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