2. Consider the following quotes on three different Treasury bonds. Each bond has 1 year until maturity and pays two semiannual coupon payments. Treasury quoting convention is assumed. Bond Years to Maturity Face Value A 1 100 8 12.00 B C 1 1 100 1000 30 19 11.50 13.00 Coupon Rate (%) Yield (%) (a) Calculate the prices of bond A, B, and C. [3 points] (b) Suppose you can only use the information on bond A and B, calculate the 6-month and 1-year spot interest rates S1/2 and 91. Spot rates shall be calculated as effec- tive annual rate (EAR). (Hint: calculate prices of discount bond first] [6 points] (c) (Bonus) Comparing the cash flows and prices of bond A, B, and C, do you think there is an arbitrage? If yes, what is your trading strategy to profit from this arbitrage opportunity? And what are the cash flows from this trading strategy? [3 points] 2. Consider the following quotes on three different Treasury bonds. Each bond has 1 year until maturity and pays two semiannual coupon payments. Treasury quoting convention is assumed. Bond Years to Maturity Face Value A 1 100 8 12.00 B C 1 1 100 1000 30 19 11.50 13.00 Coupon Rate (%) Yield (%) (a) Calculate the prices of bond A, B, and C. [3 points] (b) Suppose you can only use the information on bond A and B, calculate the 6-month and 1-year spot interest rates S1/2 and 91. Spot rates shall be calculated as effec- tive annual rate (EAR). (Hint: calculate prices of discount bond first] [6 points] (c) (Bonus) Comparing the cash flows and prices of bond A, B, and C, do you think there is an arbitrage? If yes, what is your trading strategy to profit from this arbitrage opportunity? And what are the cash flows from this trading strategy? [3 points]