1. A 7 percent bond has a yield to maturity of 6.5 percent. The bond matures in seven years, has a face value of $1,000, and pays semiannual coupon payments. What is the amount of each coupon payment? A. $30.00 B. $35.00 C. $65.00 D. $70.00 2. Which of the following refers to the coupon bond's rate of return that is required by the marketplace? A. Coupon rate B. Yield to maturity C. Dirty yield D. Current yield 3. A bond dealer determines that the present value of a particular Treasury note (a type of coupon bond), based on Treasury spot rates, is greater than its market price. Assuming no transactions costs, the dealer can generate an arbitrage profit by (choose the best answer): A. buying the Treasury note and strip its cashflows to sell as a package of zero-coupon Treasury securities B. buying the equivalent Treasury STRIPS to reconstitute them and selling them as a Treasury note C. buying the Treasury note and shortselling the equivalent package of zero-coupon Treasury STRIPS D. either A or C 4. If intermediate-term, default-free, pure discount bonds have a lower rate of return than either the comparable shorter-term or longer-term bonds, the term structure of interest rates will be: A. upward sloping B. humped C. U-shape D. downward sloping E. inverted to 10 bestesish v a 5. You are a bond analyst, collecting the following information on Treasury securities today: 10 1-year spot rate 3.9% beb s 2-year spot rate 5.4% Bond Z is a 2-year bond that pays annual coupon of 5% If bond Z is priced fairly at $993.29 today, its YTM is most accurately estimated: A. 5.4%