2. Assume that Treasury Securities with 10 years to mature, a face value of $100,000 and annual coupon payments = 4% of face value are selling today for $100,000 value in the spot man Assume that the price of a 3 -month futures contract based on a $100,000 Face Value 10 year T note with a 4% coupon is $101,500. Finally, assume that it is possible for well-collateralized institutions to either borrow or lend money for 3 norths at a periodic interest rate of .5%.

A--Explain in detail what you would do to exploit the risk free arbitrage opportunity that exists at these spot and future prices. You may ignore transactions costs such as brokers fees.

B--What would your arbitrage profit per contract be as long as the purchases and sales you used to set up your arbitrage position did not change the futures price or the underlying T-Note price?

C--Explain why the futures price and underlying price in the T-Note and T-Note would not remain at their current levels for long?

2. Assume that Treasury Securities with 10 years to mature, a face value of $100,000 and annual coupon payments = 4% of face value are selling today for $100.000 value in the spot man Assume that the price of a 3 -month futures contract based on a $100,000 Face Value 10 year T note with a 4% coupon is $101,500. Finally, assume that it is possible for well-collateralized institutions to either borrow or lend money for 3 norths at a periodic interest rate of .5%. Explain in detail what you would do to exploit the risk free arbitrage opportunity that exists at these spot and future prices. You may ignore transactions costs such as brokers fees. 4pts. What would your arbitrage profit per contract be as long as the purchases and sales you used to set up your arbitrage position did not change the futures price or the underlying T-Note price? 2pts. Explain why the futures price and underlying price in the T-Note and T-Note would not remain at their current levels for long? 4pts a) b) c)