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The current market price of T-bill maturing 110 days from now is 97.90 (out of par 100). The cash price for 90-day T-bill futures contract
The current market price of T-bill maturing 110 days from now is 97.90 (out of par 100). The cash price for 90-day T-bill futures contract expiring 20 days from now is 98.30. A 20-day T-bill futures contract is also traded in the market.
i) Compute the 20-day T-bill price that rules out arbitrage opportunities.
ii) Suppose that the 20-day T-bill rate is in fact 8%. Show how to set up transactions in T-bill contract and the futures contract that guaranteed to make an arbitrage profit.
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