19. A year ago, you purchased a face value $1,000, 3-year, 5% annual paying, treasury coupon bond at $950. Today, you ju st 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 396 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 # of equations > # of unknowns. Suppose there are only three treasury coupon bonds on the market today: Bond A: 2-year 2% treasury coupon bond, trading today at price S937. Bond B: 2-year 3% treasury coupon bond, trading today at price $970. Bond C: 2-year 4% treasury coupon bond, trading today at price $974. Let Po.1 and Po.2 be the two unknowns, where Po,1 denotes the price today of a 1-year STRIPS, and Po2 the price today of a 2-year STRIPS. Face value of STRIPS is $1. 20. 1) Since each coupon bond is essentially 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 for? 3) If market price of STRIPS are: P0.1 0.95 and P0.2-09, is there arbitrage opportunities in any of the coupon bonds, in which one(s)