Suppose we have the following current spot rate curve: 6-month spot rate: 5%. 12-month spot rate: 9%. An investor firmly believes that the 6-month spot rate in 6 months will be 4%, and that you can borrow $4,621 at the current market rates. How much profit can this investor expect to make using the entire borrowed amount if her belief turns out to be true?

Answer rating: 100% (QA)

Borrow 4621 at the current market rates Invest the borrowed amount at the current spot rates for 6 m... View the full answer