Refer to the example of Exxon’s zero coupon Eurobond issue in the section titled The Euromarkets.
a. How much would Exxon have earned if the yield on the stripped Treasurys had been 12.10%? 12.25%?

b. Suppose the Japanese government taxed the accretion in the value of zero coupon bonds at a rate of 15%. Assuming the same 11.65% after tax required yield, how would this tax have affected the price Japanese investors were willing to pay for Exxon’s Eurobond issue? What is pre tax yield at this new price? Would any arbitrage incentive still exist for Exxon?

c. Suppose Exxon had sold its zero coupon Eurobonds to yield 11.5% and bought stripped Treasury bonds yielding 12.30% to meet the required payment of $1.8 billion. How much would Exxon have earned through its arbitrage transaction?