Justify your answer.
a) True or False: When the coupon rate of a coupon bond is less than the market interest rate then the bond is a discount bond. You may assume coupons are paid annually.
b) True or False: The price of Apple stock is $95. A call option on Apple stock with exercise price $100 and that expires in 6 months costs $3 and a put option with the same exercise price and expiration date costs $6. The only risk-free asset traded among investors in this economy is a 6-month maturity bond with a 1 percent interest rate. An investor is able to conduct arbitrage by buying the stock and the put, selling the call receiving a risk-free loan.
c) True or False: In a world of certainty if the yield to maturity of a 2 year zero coupon bond is 8 percent and the yield to maturity of a 1 year zero coupon bond is 7 percent then the yield curve of the 2 year zero coupon bond is a decreasing function.