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A 1-year FRA (from the end of year2 until the end of year3) is available through a bank at 5% p.a. If the notional principal
A 1-year FRA (from the end of year2 until the end of year3) is available through a bank at 5% p.a. If the notional principal of the FRA is $100 million, how much arbitrage profit can you make by the end of year3 if actual 1-year interest rate prevails at the end of year2 is 7% p.a.? (1) 0.25; (2) 0.50; (3) 0.75; (4) 1.0; (5) 1.25; (6) 1.50; (7) 1.75; (8) 2.0; (9) 2.25; (10) 2.50; [unit: $million] Maturity Zero-rate 2-year 3.0% p.a. 3-year 4.0% p.a
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