Question 1

Consider the following bond quotations taken on June 3, 2021:

maturity	Coupon	Bid Price	Asked Price	Yield to maturity	Duration
5/15/2041	2.250%	100.242	100.262
5/15/2041	4.375%	142.166	142.186

1. What is your intuition on the different coupon rates on the two bonds, despite their same maturities?
2. What are the Yields to maturities (using the asked price) and Duration of the bonds?
3. What are the Val01 of the bonds?
4. Is there an arbitrage opportunity?
5. What is the required transaction to exploit the arbitrage opportunity? Specify the details of the transaction.
6. How much would you make on $10m face value on these bonds, assuming each YTM changes by half of the current spread?
7. Briefly state what are the risks involved in the strategy?

Risk-free rate R_f

For Risk-free rate R_f for this question, use the Yield (using the asked price) of the following 10-year bond (price as of June 3, 2021, this is the settlement date):

maturity	Coupon	Bid Price	Asked Price	Yield to Maturity
5/15/2031	1.625%	100.092	100.102	1.614

Question 1 Consider the following bond quotations taken on June 3, 2021: maturity Coupon Bid Price Asked Price Yield to maturity Duration 5/15/2041 2.250% 100.242 100.262 5/15/2041 4.375% 142.166 142.186 a. What is your intuition on the different coupon rates on the two bonds, despite their same maturities? b. What are the Yields to maturities (using the asked price) and Duration of the bonds? c. What are the Val01 of the bonds? d. Is there an arbitrage opportunity? e. What is the required transaction to exploit the arbitrage opportunity? Specify the details of the transaction. f. How much would you make on $10m face value on these bonds, assuming each YTM changes by half of the current spread? g. Briefly state what are the risks involved in the strategy? Risk-free rate Rr For Risk-free rate Rf for this question, use the Yield (using the asked price) of the following 10- year bond (price as of June 3, 2021, this is the settlement date): maturity Coupon Bid Price Asked Price Yield to Maturity 5/15/2031 1.625% 100.092 100.102 1.614 Question 1 Consider the following bond quotations taken on June 3, 2021: maturity Coupon Bid Price Asked Price Yield to maturity Duration 5/15/2041 2.250% 100.242 100.262 5/15/2041 4.375% 142.166 142.186 a. What is your intuition on the different coupon rates on the two bonds, despite their same maturities? b. What are the Yields to maturities (using the asked price) and Duration of the bonds? c. What are the Val01 of the bonds? d. Is there an arbitrage opportunity? e. What is the required transaction to exploit the arbitrage opportunity? Specify the details of the transaction. f. How much would you make on $10m face value on these bonds, assuming each YTM changes by half of the current spread? g. Briefly state what are the risks involved in the strategy? Risk-free rate Rr For Risk-free rate Rf for this question, use the Yield (using the asked price) of the following 10- year bond (price as of June 3, 2021, this is the settlement date): maturity Coupon Bid Price Asked Price Yield to Maturity 5/15/2031 1.625% 100.092 100.102 1.614