4. Assume that tFT2= FT1 (1 + TIFT2 ) + TICT2. Also assume that T2 -...
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4. Assume that tFT2= FT1 (1 + TIFT2 ) + TICT2. Also assume that T2 - T₁ is one year, T1CT2 = $1 and TITT2 =10% A) Are the following equilibrium prices? FT1 = 100, FT2= 133. If not, what is the arbitrage profit (established at time t) from positions held till maturity? B) Say prices adjust the next day t + 1 (where t+1 < T₁ ) where t+1FT₁ can assume the following possible values: a) t+1FT1 = 110 b) t+1FT1 = 100 c) t+1FT1 = 120 4. Assume that tFT2= FT1 (1 + TIFT2 ) + TICT2. Also assume that T2 - T₁ is one year, T1CT2 = $1 and TITT2 =10% A) Are the following equilibrium prices? FT1 = 100, FT2= 133. If not, what is the arbitrage profit (established at time t) from positions held till maturity? B) Say prices adjust the next day t + 1 (where t+1 < T₁ ) where t+1FT₁ can assume the following possible values: a) t+1FT1 = 110 b) t+1FT1 = 100 c) t+1FT1 = 120
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A No the equilibrium prices are not t FT 1 100 and t FT 2 133 The arbit rage p... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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