Assume that we know the following A bond will make a risk-free payment of 1000 SEK in one year's time. The current price of the bond is 970 SEK. You can also put your money into a bank account which we also assume is risk-free. The bank account gives you an interest rate of 1.4 % over the year and this is also the rate at which you can borrow money. What would be the arbitrage strategy, and how much do we gain pursuing it?

(The alternatives display numbers rounded to one decimal point.)

a. We borrow 986.2 SEK from the bank and buy the bond for 970 SEK. This gives us 16.2 SEK today.

b. Invest 986.2 SEK in the bank account today and receive 1000 SEK in one year.

c. Buy the bond today for 970 and receive 1000 SEK in one year.

d. We go short in the bond and invest 970 SEK in the bank account. This gives us 16.4 SEK today. e. There is no possibility for arbitrage.