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    How do you find an arbitrage strategy based on these interest rates and the future rate?

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    23. The following prices are observed. Formulate an arbitrage strategy to profit from the situation.

    - Interest rate is 7.25% compounded daily, for 270-day T-bills in the spot market.
    - Interest rate is 7.10% compounded daily, for 180-day T-bills in the spot market.
    - The futures rate is 7.50% for T-bills with 90 days to maturity, to be delivered 180 days from now.

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    Solution Preview

    23. In this problem, there are two ways to invest for a 270-day period. One way is to buy 270-day bills, which yields 7.25%. The other is to buy 180-day bills and then contract to ...

    Solution Summary

    This posting explains a three step arbitrage strategy for the given problem in 123 words.