Question #3. Bond Pricing (40 points) At time 0, the U.S. Treasury auctions off a ten-year bond with a par value of $100, and semi annual payment of $2.5 per share every six months. The auction price was at go -$95 dollars per share. 1. Draw a timeline of the treasury bond's cash payouts. Denote the maturity of this treasury bond at time 0, as YTaur Solve for the yield to maturity 2. In period 0, a large corporation auctioned off a ten-year bond with par value of $100. The bond makes an annual payment S6 per share. It is known that the implied yield to maturity of this corporate bond is 150 basis points above YTMtury at what price per share (denote it as Po) can the company expect to sell the bonds to the public? 3. In period 1, after coupon payments were made, bad news on the US economy breaks out and bond investors "fly to safety" by selling the corporate bonds and buying treasury bonds. The corporate bonds were traded at P1 = $85 per share, while the treasury bond were traded at ql-S9S5 dollars per share. (a) What's the period 1 YTM on corporate bond and treasury bond? (b) Suppose in period 0 an investor short sold 100 shares of treasury bond at price of go, and use the proceeds to buy corporate bonds at price of po. The same investor then sells the corporate bond in period 1, using the proceeds from which along with his own funds to unwind his short position in treasury bonds. What is the realized percentage return of his investments? (Hint: do not forget coupon payments!)