1. If the price of the 1-year coupon bond was $1030. How would you take advantage of the arbitrage opportunity?

A. Buy 1 unit of 1-yr coupon bond, sell 10 unit of the 6-mo zero and 110 unit of the 1-yr zero

B. Buy 1 unit of 1-yr coupon bond, sell 1 unit of the 6-mo zero and 11 unit of the 1-yr zero

C. Sell 1 unit of 1-yr coupon bond, buy 10 unit of the 6-mo zero and 110 unit of the 1-yr zero

D. Both A and B are correct

2. A yield curve derived from a series of yields-to-maturity on zero-coupon bonds is the:

A. A par curve.

B. A spot curve.

C. A forward curve.

D. None of the above.

3. Which of the following statement is FALSE about Yield-to-maturity? YTM is equal to annualized holding period return if:

A. You receive all the scheduled cash flow.

B. You hold it to maturity.

C. You can reinvest at the same rate.

D. You can reinvest at a higher rate than the initial YTM.