Use the following spot rates to answer the following questions. Maturity Spot rate (%) 1 year 4.93% 2-years 4.47% 3-years 4.12% 5-years 3.84% 10-years 3.68% Assume that Citibank is offering to sell a one-year Treasury bill next year with a rate of 5 % (i.e., you can enter into a contract today to lock in a 5% return on a one-year security purchased/sold next year). Based on the above spot rates, does the Citibank offer generate any arbitrage opportunities? If so, compute the total $ profits that can be generated from this opportunity, specifying the steps you would take. Assume you will borrow/invest $1,000. O Yes; profit of $5.55/ $1000 borrowed. O No. 50 O No: Loss of $5.55/ $1000 borrowed.based on Citibank's offered rate. O Yes: $55.55/$1000 borrowed.
Use the following spot rates to answer the following questions. Maturity Spot rate (%) 1 year 4.93% 2-years 4.47% 3-years 4.12% 5-years 3.84% 10-years 3.68% Assume that Citibank is offering to sell a one-year Treasury bill next year with a rate of 5 % (i.e., you can enter into a contract today to lock in a 5% return on a one-year security purchased/sold next year). Based on the above spot rates, does the Citibank offer generate any arbitrage opportunities? If so, compute the total $ profits that can be generated from this opportunity, specifying the steps you would take. Assume you will borrow/invest $1,000. O Yes; profit of $5.55/ $1000 borrowed. O No. 50 O No: Loss of $5.55/ $1000 borrowed.based on Citibank's offered rate. O Yes: $55.55/$1000 borrowed.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Use the following spot rates to answer the following questions.
Maturity Spot rate (%)
1 year
4.93%
2-years 4.47%
3-years 4.12%
5-years 3.84%
10-years 3.68%
Assume that Citibank is offering to sell a one-year Treasury bill next year with a rate of 5% (i.e., you can enter into a contract today to lock
in a 5% return on a one-year security purchased/sold next year). Based on the above spot rates, does the Citibank offer generate any
arbitrage opportunities? If so, compute the total $ profits that can be generated from this opportunity, specifying the steps you would
take. Assume you will borrow/invest $1,000.
O Yes: profit of $5.55/ $1000 borrowed.
O No: $0
O No: Loss of $5.55/ $1000 borrowed.based on Citibank's offered rate.
O Yes: $55.55/$1000 borrowed.
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