Determine the market prices of Treasury strips with maturities from .5 years to 3 years created from the three-year T-note with semiannual coupons of 3.75. Determine the values of the strips in terms of semiannual YTM equal to (Annualized YTM)/2.

c. Explain the arbitrage that exists from buying the three-year note, stripping it, and selling the strip securities.

d. Suppose the actual spot yield curve converges to the theoretical spot yield curve. Determine the market prices of Treasury strips with maturities from

.5 years to 3 years created from the three-year T-note with semiannual coupons of 3.75. Does an arbitrage exist from buying the three-year note, stripping it, and selling the strip securities?

e. Comment on the actual yield curve being the theoretical spot rate curve.