Answer the following questions given the Treasury note quotes below. (For our purposes assume that we are exactly 6 months between coupons. Also assume that there is no interest income on reinvested coupons.) Date Coupon Ask Price Ask Yield December 2023 7.5% 1015 5.90% December 2024 7.5% 1017 6.60%

Flag question: Question 6 Question 65 pts Given these quotes and assuming that the yield curve will remain constant, what, if any, profits can be made by using this strategy for a one year holding period? Group of answer choices $13.32 $73.32 $59 $0

Flag question: Question 7 Question 72 pts Given your answer in previous question, how many basis points, if any, can you pick-up by using this strategy? Group of answer choices 70 basis points 131 basis points 61 basis points 0 basis points

Flag question: Question 8 Question 84 pts Removing the assumption of the constant yield curve, what is the lowest possible selling price for the 2024 (2 year) note, after one year, for this strategy to be profitable? Group of answer choices $1000 $1001 $1009 $1002

Flag question: Question 9 Question 94 pts When performing such a strategy it is important to be aware of the potential risk of your interest rate predictions being wrong. By how much would the yield on the 2024 bond have to increase in one year for your profits to be eliminated? [Hint: you can do this by solving for the yield to maturity given the price found in the previous question and using n = 2 periods.] Group of answer choices 90 basis points 69 basis points 0 basis points 79 basis points