17. T F Other variables held constant, there is an inverse relation between bond prices and interest rates is an 18. Red Mountain, Inc. bonds have a face value of $1.000. The bonds carry a 7 percent coupon, pay interest semiannualy, and mature in 13.5 years. What is the current price of these bonds if the yield to maturity is 6.82 percent A. $994.56 B. $1,015.72 C. $1,018.27 D. $1,020.00 19. A year ago you purchased a face value S 1,00 3-year 5% annual paying, treasury coupon bond as S90 day you just cashed in the first coupon but don't want to keep it anymore. Given today's treasury information: 1-year treasury bill, a type of pure discount bond, selling at $980, face value $1000 2-year treasury spot rate 3% 3-year treasury spot rate 4% Find out how much can you sell it for? Think what are the future cashflows of this coupon bond as of today. It was a 3-year coupon bond a year ago. Is it still a 3-year bond today? Fixed Income Arbitrage is to find mispricing of coupon bonds through the system of linear equations where equations # ofunknowns. Suppose there are only three treasury coupon bonds on the market today Bond A: 2-year 2% treasury coupon bond, trading today at price $937 Bond B: 2-year 3% treasury coupon bond, trading today at price $970. of 20. Bond C: 2-year 4% treasury coupon bond, trading today at price S974. Let Pax and Poz be the two unknowns, where Po,1 denotes the price today of a 1-year STRIPS, and Poa the price today of a 2-year STRIPS. Face value of STRIPS is $1. 1) Since each coupon bond is essentily a portfolio of STRIPS, write the 3-equation 2-unknown system. 2) Following 1), usually how many pairs of solutions to the 2 unknowns can you solve f 3) If market price of STRIPS are: Pox -0.95 and Poz 0.9, is there arbitrage opportunities in any of the coupon bonds in which one(s)