The price of the three-year US Government coupon bond with 5% coupon rate is $1,115.50. This bond pays coupons annually. The price of the one-year Treasury zero- coupon bond is $998. The price of the two-year Treasury zero-coupon bond is $995. The price of the three-year Treasury zero-coupon bond is $990. All par values are $1,000. Is this this coupon bond priced correctly? If not, how can you exploit this mispricing? The coupon bond is underpriced. I will short 1,000 coupon bonds and use this money to buy 50 one-year zero coupon bonds, 50 two-year zero-coupon bonds and 1050 three-year zero-coupon bonds. The coupon bond is underpriced. I will short 50 one-year zero coupon bonds, 50 two-year zero-coupon bonds and 1050 three-year zero-coupon bonds and use this money to buy 1,000 coupon bonds. The coupon bond is overpriced. I will short 50 one-year zero coupon bonds, 50 two-year zero-coupon bonds and 1050 three-year zero-coupon bonds and use this money to buy 1,000 coupon bonds. The bond is correctly priced. There is no arbitrage opportunity to exploit. The coupon bond is overpriced. I will short 1,000 coupon bonds and use this money to buy 50 one-year zero coupon bonds, 50 two-year zero-coupon bonds and 1050 three-year zero-coupon bonds.