The six-month Libor rate is given to be 3% and the twelve-month rate to be 4%. The

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The six-month Libor rate is given to be 3% and the twelve-month rate to be 4%. The 6 × 12 FRA is trading at 4.2%. Show how you would construct a sure arbitrage to take advantage of these market rates. Assume the first six-month period is 181 days and the second is 184 days. The interest-rate convention is Actual/360.

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