1. a) Plot the treasury zero-rate yield curve. Is it increasing or decreasing? Is this normal?

b) What is the market price of a treasury maturing in 5 months?

c) Of the bonds listed, which has a price closest to 98.00?

Extra Credit: Suppose a friend offers to give you a $1,000 bond that matures in 11 months in exchange for $990 two months from now. Always the wary consumer, you ask if they would be willing to pay you $990 in two months in exchange for the same bond today. After some consideration they agree to take either side of that trade.

Explain how you could use these offers to make arbitrage profits assuming that you can borrow or lend at the same rate as treasuries with no transaction costs.

D WN Expiration (month: Zero-Coupon Yield (%) 0.662 0.874 3 0.934 1.044 1.077 1.112 1.161 1.203 1.252 1.277 1.289 1.294 1.334 24 1.39 36 1.52 60 1.817 120 2.152 240 2.492 600 10 o lcim stilu 18 nmn numit in