A 2-year zero coupon bond is sold at a price of 97.8, in addition to that, a bond maturing in 2 years that pays Lt% of coupon semi-annually sells 101.4. If both bonds have a face value of 100 (Value at maturity) and assuming both bonds are risk free. What should be the price of a free bond risk paying 2xLt% coupon every six months so that there is no possibility of arbitrage?
a)102.2
b)105
c)99.6
How do you think you should approach this?
I tried to use the bootstraping to compute the 2 spot rate from the 2 year coupon bond, but it has 2 incognitas and I do not know what to do.
No need to calculate spot rates. You don’t need your calculator for this one. 
Think of it like combining separate cash flows to create a final package.
you mean interpolation?
Dos incognitas. I love it!
Don’t give away the show!
ohh, i know, it just theory.
how can i delete this post?
[No need to delete it. Edit it and tell us about cash flows, as @breadmaker suggested. BCIII]
Actually, it’s a good, practical exercise.
