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Problem 3 Three banks offer the following interest rates for cash deposits: (a) Bank 1: Annual interest rate r compounded annually. (b) Bank 2: Annual

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Problem 3 Three banks offer the following interest rates for cash deposits: (a) Bank 1: Annual interest rate r compounded annually. (b) Bank 2: Annual interest rate r, compounded quarterly. (c) Bank 3: Annual interest rate rc compounded continuously. Assume all three banks carry the exact same risk. What is the relationship between ri, rq, rc for no arbitrage to exist

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