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6. The term structure of interest rates can be declining with short-term spot rates higher than long-term spot rates. How steep can the decline in
6. The term structure of interest rates can be declining with short-term spot rates higher than long-term spot rates. How steep can the decline in spot rates be? Consider two STRIPS: One has 3-years to maturity and yields 10%, while the second has 5 -years to maturity and yields 5%. Assume annual compounding. Discuss whether this scenario is possible and if not, what arbitrage strategy could be set up to gain from the mispricing
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