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Suppose that the risk-free interest rate is 10%. A bond with 8% yield is traded at a price. The current bond price is 100. a.

Suppose that the risk-free interest rate is 10%. A bond with 8% yield is traded at a price.

The current bond price is 100.

a. Calculate the theoretical futures price for the contract deliverable in six months.

b. If the actual futures price for this stock is 102, describe the arbitrage opportunity

and calculate the profit that you can realize.

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