In class we discussed the concept of riding the yield curve. 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 $20244\mathrm{.}0\%991\mathrm{.}324\mathrm{.}90\%$

December $20254\mathrm{.}2\%972\mathrm{.}025\mathrm{.}70\%$

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

$$63\mathrm{.}23$

$$48\mathrm{.}68$

$$13\mathrm{.}32$

$$14\mathrm{.}55$

Flag question: Question $7$

Question $72$ pts

Given your answer in the previous question, how many basis points, if any, can you pick$-$up by using this strategy?

Group of answer choices

$80$ basis points

$159$ basis points

$139$ 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 $2025(2$ year$)$ note, after one year, for this strategy to be profitable?

Group of answer choices

$$979\mathrm{.}65$

$$1000$

$$1002$

$$977\mathrm{.}65$

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 $2025$ 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

$63$ basis points

$0$ basis points

$165$ basis points

$85$ basis points