Question: Suppose a two-year Treasury note is trading at its par value $1,000. You examine the cash flows, and if you sell them individually in the

Suppose a two-year Treasury note is trading at its par value $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.

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a The prices are incorrect The individual zerocoupon bonds add up to 101794 which is higher than t... View full answer

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