5.

The 90-day LIBOR rate is 5% per annum and the 180-day LIBOR rate is 5.1% per annum both expressed with continuous compounding and an actual/365 day count.

The Eurodollar futures price for a contract maturing in 90 days is quoted as 94.80.

Consider the following statements.

Statement I. The forward rate with quarterly compounding and on the basis of a 360 day year is (close to) 5.05%.

Statement II. The futures rate with continuous compounding and on the basis of a 365 day year is (close to) 5.24%.

Statement III. A riskless arbitrage would involve buying the futures contract, borrowing at the 180-day rate, and lending at the 90-day rate.

Which of the following is correct?

a.

Statement III is incorrect, Statements I and II are correct.

b.

Statement I is incorrect, Statements II and III are correct.

c.

Statement II is incorrect, Statements I and III are correct.

d.

Statements I, II and III are incorrect.

e.

Statements I, II and III are correct.