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A trader takes a short position in a one year forward contract on a 30-yearTreasury Bond. The Treasury Bond to be delivered in 1-year is
A trader takes a short position in a one year forward contract on a 30-yearTreasury Bond. The Treasury Bond to be delivered in 1-year is assumed to have an 8% coupon rate and a par value of 100. Suppose the 1-year forward price on the bond is $125. Construct a strategy from which an investor can earn a riskless profit. (Use a flat term structure, with a continuously compounded annual return of 6%)
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