There is a T-bill futures contract expiring in 70 days being traded. The 91-day T-bill yield is 3.44%, the 161-day T-bill yield is 0.1%, and the risk-free rate is 0.05%. If the market price on the T-bill future contract is 101, How will traders arbitrage? 1. borrow $99.9559 at the risk-free rate, buy a 161-day spot T-bill for S0(161) = 99.9559, and take a short position in a T-bill futures contract expiring in 70 days at the futures prices of 101 2. borrow $99.1603 at the risk-free rate, buy a 91-day spot T-bill for S0(91) = 99.1603, and take a short position in a T-bill futures contract expiring in 70 days at the futures prices of 101 3. Sell the T-bill on the spot future contract at 101, repays the principal and interest on the loan of 99.9655 4. Sell the T-bill on the spot future contract at 101, repays the principal and interest on the loan of 99.1698

Answer rating: 100% (QA)

Lets break down the options and see which one provides an arbitrage opportunity 1 Borrow 999559 at t... View the full answer