4, (10 points) Consider two Treasury coupon bonds maturing in six months and one year, with (annualized) coupon rate 5 and 4, respectively. The corresponding prices (percentages of face value and 32nds of a percentage point) are 101:16 and 100:10, respectively. Calculate the discount factors d, and d2, the spot rates y, and y2, and the forward rate fi implied by the above prices. 8 Now, consider the STRIPS that make up the 4- bond and assume they are fairly priced (no 2 arbitrage opportunities). Assume you buy the 4 coupon bond (M=$100,000) and you use it to 2 create the two STRIPS with the government. You sell the STRIPS. Assume that you can record the sale at the forward price of the STRIPS for delivery immediately before the next coupon payment; while the purchase of the coupon bond is recorded at the spot price. Calculate the profit or loss that you would show as a result of the transaction. 4, (10 points) Consider two Treasury coupon bonds maturing in six months and one year, with (annualized) coupon rate 5 and 4, respectively. The corresponding prices (percentages of face value and 32nds of a percentage point) are 101:16 and 100:10, respectively. Calculate the discount factors d, and d2, the spot rates y, and y2, and the forward rate fi implied by the above prices. 8 Now, consider the STRIPS that make up the 4- bond and assume they are fairly priced (no 2 arbitrage opportunities). Assume you buy the 4 coupon bond (M=$100,000) and you use it to 2 create the two STRIPS with the government. You sell the STRIPS. Assume that you can record the sale at the forward price of the STRIPS for delivery immediately before the next coupon payment; while the purchase of the coupon bond is recorded at the spot price. Calculate the profit or loss that you would show as a result of the transaction