# Question: Suppose that 10 years from now it becomes possible for

Suppose that 10 years from now it becomes possible for money managers to engage in time travel. In particular, suppose that a money manager could travel to January 1981, when the 1-year Treasury bill rate was 12.5%.

a. If time travel were costless, what riskless arbitrage strategy could a money manager undertake by traveling back and forth between January 1981 and January 1982?

b. If many money managers undertook this strategy, what would you expect to happen to interest rates in 1981?

c. Since interest rates were 12.5% in January 1981, what can you conclude about whether costless time travel will ever be possible?

a. If time travel were costless, what riskless arbitrage strategy could a money manager undertake by traveling back and forth between January 1981 and January 1982?

b. If many money managers undertook this strategy, what would you expect to happen to interest rates in 1981?

c. Since interest rates were 12.5% in January 1981, what can you conclude about whether costless time travel will ever be possible?

**View Solution:**## Answer to relevant Questions

The spot price of a widget is $70.00 per unit. Forward prices for 3, 6, 9, and 12 months are $70.70, $71.41, $72.13, and $72.86. Assuming a 5% continuously compounded annual risk-free rate, what are the annualized lease ...Given a continuously compounded risk-free rate of 3% annually, at what lease rate will forward prices equal the current commodity price? (Recall the copper example in Section 6.3.) If the lease rate were 3.5%, would there be ...Suppose you observe the following par coupon bond yields: 0.03000 (1-year), 0.03491 (2-year), 0.03974 (3-year), 0.04629 (4-year), 0.05174 (5-year). For each maturity year compute the zero-coupon bond prices, effective annual ...A lender plans to invest $100m for 150 days, 60 days from today. (That is, if today is day 0, the loan will be initiated on day 60 and will mature on day 210.) The implied forward rate over 150 days, and hence the rate on a ...Suppose a 10-year zero-coupon bond with a face value of $100 trades at $69.20205. a. What is the yield to maturity and modified duration of the zero-coupon bond? b. Calculate the approximate bond price change for a ...Post your question