1. Assume that a 5-month forward contract on a zero-coupon bond with market face value of Php5,000 and is currently trading at Php4,777. Suppose that the annual risk-free interest rate is 6.28%, A. Determine the forward contract price under the no-arbitrage principle. B. Suppose that forward contract is valued at Php5,100 instead of the no-arbitrage price determined in letter A. This bond must be delivered 5 months from now due to a short position in the forward contract. In this case, the arbitrage entails borrowing Php4,777 at the risk-free rate of 6.28%, purchasing the bond for Php4,777, and simultaneously taking a short position in the forward contract on the zero-coupon bond, obligated to deliver the bond for the forward price and receive Php5,100 at the contract's expiration. We can fulfill our forward contract obligations at the settlement date by delivering the zero-coupon bond for payment of Php5,100, regardless of its market value at the moment. The Php5,100 cash from the forward contract settlement would be used to repay the Php4,777 loan. What is the total amount of repaying the loan over 5 months? C. How much is the arbitrage profit? D. Illustrate, in a table, the total cash flow of this cash and carry arbitrage given that the forward is overpriced, currently and 5 months from current time. 2. Assume the forward contract is actually trading at Php4800, rather than the no-arbitrage price determined in letter A of number 1. In this situation, we reverse the arbitrage trades and make an arbitrage profit as follows. We are selling the bond short today in order to acquire a long position in the forward contract, committing us to buy the bond in 150 days at the forward price of Php4800. The Php4777 earnings from the short sale are invested for five months at a 6.28% annual rate. This case allows us to receive, at the settlement date, the investment proceeds valued at the no-arbitrage price determined in letter A of number 1, accept delivery of the bond in return for a payment of Php4800, and close out our short position by delivering the bond we just purchased at the forward price. A. What is the amount of the arbitrage profit? B. Illustrate, in a table, the total cash flow of this situation of a reverse cash and carry arbitrage given that the forward is underprice, currently and 5 months from current time. 3. After 3 months the spot price on the zero-coupon bond is Php5,300, instead of the FP determined in number 1, letter A. With the same risk-free interest rate as 6.28%: A. What is the value of the long and short position in the forward contract? B. Now compare the forward contraction valuation at initiation, during the life of the contract and at expiration.