Suppose a two-year Treasury note is trading at its par value $1,000. You examine the cash flows,

Question:

Suppose a two-year Treasury note is trading at its $1,000. You examine the cash flows, and if you sell them individually in the market, you get $47.85 for the six-month coupon, $45.79 for the one-year coupon, $43.81 for the one-and-a-half-year coupon, $41.93 for the two-year coupon, and $838.56 for the principal.
a. Are these prices correct?
b. If not, show how you can capture arbitrage profit in this case. Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...