$1\mathrm{.}1$ What are the cash flow dates and the cash flows of $$1,000$ face value

of the U$.$S$.$ Treasury $2\frac{3}{4}$ s of May $31,2017,$ issued on May $31,2010?(5)$

$1\mathrm{.}2$ Use this table of U$.$S$.$ Treasury bond prices for settle on May $15,2010,$

to derive the discount factors for cash flows to be received in $6$ months,

$1$ year, and $1\mathrm{.}5$ years. $(10)$

$1\mathrm{.}3$ Suppose there existed a Treasury issue with a coupon of $2\%$ matur$-$

ing on November $15,2011.$ Using the discount factors derived from

Question $1\mathrm{.}2,$ what would be the price of the $2$ s of November $15,$

$2011?(10)$

$1\mathrm{.}4$ Say that the $2$ s of November $15,2011,$ existed and traded at a price

of $101$ instead of the price derived from Question $1\mathrm{.}3.$ How could

an arbitrageur profit from this price difference using the bonds in the

earlier table? What would that profit be$?$ Use a Table.$(15)$

$1\mathrm{.}5$ Given the prices of the two bonds in the table as of May $15,2010,$

find the price of the third by an arbitrage argument. Since the $3\frac{1}{2}s$ of

$\frac{5}{15}\frac{?}{2020}$ is the on$-$the$-$run $10-$year, why might this arbitrage price

not obtain in the market? $(10)$