In Early 2017, Jackson City Issued $10 Million of 6

In early 2017, Jackson City issued $10 million of 6 percent term bonds to finance a highway construction project. Because of problems related to the Endangered Species Act, the city deferred highway construction that year. In early 2018, the city entered into contracts for construction that will begin in summer 2018 and be completed by summer 2019. When the city realized they would not need the bond proceeds in 2018, they invested the proceeds in risk-free federal government securities bought to yield 7 percent. What potential arbitrage liability, if any, should the city recognize as a result of the year 2018 transactions?

A) None.
B) The amount of the earnings from the federal government securities.
C) The amount of the interest paid on the term bonds.
D) The difference between the earnings from the federal government securities and the interest paid on the bonds.