Question

. If a bond expiring in one year, with face value of 100, is trading today...

. If a bond expiring in one year, with face value of 100, is trading today for $95, and a similar bond expiring in two years is trading for $90, what should be the forward rate on a forward loan for $100 (to be received in one year, and paid back in two)? If the Forward rate is 5%, what arbitrage strategy has positive profits? Make sure you are state exactly what happens in each period. 6. If the interest rates for deposits or loans are flat at 5% (any length of time), what should be the forward rate on a forward loan for $100 (to be received in one year, and paid back in two)? If the Forward rate is 4%, what arbitrage strategy has positive profits? Make sure you are state exactly what happens in each period.

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