(ABC is three bonds in turn, T in the first line is the time point, 0 is now, 1 is the end of the first year)
T 0 1 2
A -96. 154 100 0
B -85.734 0 100
C - 100 8 108
So now, the total cash flow of buying three bonds is
T 0 1 2
-28 1.888 108 208
If risk-free arbitrage is to be carried out, it needs to be matched by buying and selling different bonds.
Matching all three cash flows into three non-negative values is a risk-free arbitrage opportunity.
For example, observing these three cash flows, it is easy to compare two cash flows, T= 1 and T=2.
Match to 0, and then match the cash flow with T=0 to a positive value.
For example, every time I sell the third bond (bond C) of 1 unit and buy the bond B of 1.08 unit, I can match the cash flow to 0 when T=2. Similarly, I can match the cash flow at T= 1 by buying 0.08 unit of bond A. ..
At this time, I found that my T=0 cash flow is positive, so after this round of operation, I can earn this positive cash flow without any cost at present:
Buy/sell quantity 0 1 2
7.69232 -8 0
b- 1.08 92.59272 0- 108
C 1 - 100 8 108
Total 0.28504 0 0 0
Of course, I can't actually buy or sell 0.08 bonds. I can enlarge 100.
For example, short eight aces, short 108 B and buy 100 C.
So now I buy C with the money from shorting AB, which is 28.504 yuan more. A year later, I will use C's interest income of 800 to pay interest to A, which is just a hedge. By the end of the second year, the interest income of C is 10800, and the interest of B is paid, and the net cash flow is also zero. This is the initial $28.504.
This is only the most intuitive method, and the collocation methods that can achieve the effect are infinite. You can try again yourself.
I don't know your economic level, I can only tell you this.