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Given the following interest rates for borrowing and lending, answer the following questions: ...

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Finance

Given the following interest rates for borrowing and lending, answer the following questions:

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1. Complete the following statement: In order to earn a riskless profit, I have to borrow $100,000 today at _________. Simultaneously, I have to lend the same amount I borrowed at _______. A year later, I will have earned _____, this amount will be lent again at ________. *

a. The one-year rate of 5.2%; the two-year rate of 5.9%; $112,879; 7.3%.

b. The one-year rate one year from now of 7.3%; the two-year rate 5.9%; $112,879; 5.2%

c. The two-year rate of 5.9%; the one-year rate of 5.2%; $105,200; 7.3%.

d. The two-year rate of 7.3%; the one-year rate of 5.2%; $105,200; 5.9%.

e. None of the above

2. What is the amount of riskless profit that you can earn? *

a. $731.5

b. $713.5

c. $753.1

d. $735.1

e. None of the above

5.2% 7.3% One-year rate One-year rate one year from now Two-year rate Assume that the expectation theory holds. 5.9%

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