JUST SOLVE Q2 Q1. The annualized 6-month spot rate is 4% and the annualized...
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JUST SOLVE Q2
Q1. The annualized 6-month spot rate is 4% and the annualized 12 -month spot rate is 6%. The annualized forward rate from the end of 6th month to the end of 12th month is 10%. Develop an arbitrage strategy using the spot rates and the forward rate. ( 15 points) Q2. "If the term structure is flat, it must mean that the market expects the future interest rate stay the same." Use the three hypotheses that we discussed in the class to assess this statement. (10 points)
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