Assume that the following Treasury yield curve is in existence.

Time in Years	Time in Periods	Coupon Rate	YTM	Price	Theoretical Semi-Annual Spot Rate	Theoretical Annual Spot Rate	Implied Semi-annual forward rate	Implied Annual Forward Rates
0.5	1	0.00%	4.50%	$97.79951	2.25%	4.50%	2.55022%	5.1004401%
1	2	0.00%	4.80%	$95.36743	2.40%	4.80%	4.80000%	6.3514618%

Show that the actual futures price (BEY of 4.9%) is incorrect using a zero-cost investment strategy involving the spot market and the futures market. (Of course, if the futures price is correct, this zero cost strategy will also have zero profit.) Show the actual dollar cash flows at time 0 and at the expiration of the futures contract.

QUESTION:

Time 0: Borrow at the _____ a)6-month spot rate b) 6-month forward rate c)1-year spot rate d) 1-year forward rate

+$ _____ a) $100000 b) $97608.59 c) $95,367.43 d) $97,513.20