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You are provided with information about the yield curves of treasury securities as follows: Maturity (years) 1 On-the-run yield curve Pure yield curve 2 2.50%
You are provided with information about the yield curves of treasury securities as follows: Maturity (years) 1 On-the-run yield curve Pure yield curve 2 2.50% 2.99% 3.48% 3.95% 4.37% 2.50% 3% 3.50% 4% 3 4 5 The on-the-run yield curve is plotted using the yields of coupon bonds paying annual coupons, which are recently issued and traded at par. The pure yield curve is plotted using the yields of zero coupon bonds. You observe that a 5% treasury bond paying annual coupons with a par value of $1000 and 4 years to maturity is currently traded at the price of $1033. Based on the yields information in the exhibit, you conclude that this coupon-paying bond is undervalued fairly priced O overvalued lack of sufficient information to make a conclusion
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