Assume that the following Treasury yield curve is in existence. (look the pdf)

Time in Years Time in Periods Coupon Rate YTM PriceTheoretical Semi-Annual Spot RateTheoretical 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.

Assume that the following Treasury yield curve is in existence. Theoretical Implied Time in YTM Price Semi- Theoretical Semi- Implied Time in Coupon Annual Spot annual Annual Years Periods Rate Annual Spot Rate Forward Rate forward rate Rates 0.5 1 0.00% 4.50% $97.79951 2.25% 4.50% 2.55022% 5.1004401% 1 2 0.00% 4.80% $95.36743 2.40% 4.80% 4.80000% 6.3514618% Show that the actual futures price (BEY of 4.9%) is incorrect using a zero-cost investment strategy involving the spot market and the futures market. (Of course, if the futures price is correct, this zero cost strategy will also have zero profit.) Show the actual dollar cash flows at time O and at the expiration of the futures contract. Time 0: Borrow at the [Xt1#] +$ [it}# ] Buy the V V Net cash flow to [it} ] V [it } ] the six-month futures contract At expiration in 6 mo: Pay back the loan plus interest -$ [it }#] V the bond we own to fulfill the futures contract [it } ] Net cash flow +$