Question: PROBLEM #2 60 POINTS Use the following information to answer questions 1-5. $100 par of a 0.5-year 8%-coupon bond has a price of $102. $100

PROBLEM #2 60 POINTS Use the following information to answer questions 1-5. $100 par of a 0.5-year 8%-coupon bond has a price of $102. $100 par of a 1-year 10%-coupon bond has a price of $105. 1) What is the yield for the 0.5-year zero? 2) What is the yield for the 1-year zero? 3) Suppose $100 of a 1-year 6%-coupon bond has a price of $102. Is there an arbitrage opportunity? Ifso, how? 4) Following (3), exactly how do you trade to take advantage of this opportunity, i.e. what types of bonds do you buy and sell? Clearly outline their characteristics. 5) Suppose $100 of a one-year Treasury issue with a coupon of 2%. Using the discount factors above, what would be the price of the 2% coupon bond? 6) What is the six-month forward rate at year 0.5

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