How can you make a profit on an overpriced bond?

Interview Question: How can you make a profit on an overpriced bond?

Answer: Its cash flow can be replicated more cheaply by other securities. You can do the following:

1) Borrow the overvalued security and sell (short) it.

2) Replicated its cash flow with a long position in a lower priced security. Pay interest and principal on the sold bond.

3) By identical security to the one borrowed – hopefully at a lower price.