Question
1: Suppose that 10 years from now it becomes possible for money managers to engage in time travel. In particular, suppose that a money manager
1: Suppose that 10 years from now it becomes possible for money managers to engage in time travel. In particular, suppose that a money manager could travel to January 1981, when the 1-year Treasury bill rate was 12.5%. Discuss the following three questions. (Just a broad discussion incorporating your imagination to discuss the impact of time travel on the market and your investment.)
a. If time travel were costless, what riskless arbitrage strategy could a money manager undertake by traveling back and forth between January 1981 and January 1982?
b. If many money managers undertook this strategy, what would you expect to happen to interest rates in 1981?
c. Since interest rates were 12.5% in January 1981, what can you conclude about whether costless time travel will ever be possible?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started