1. Forward Contracts, Forward Rates, and Arbitrage - 10 points Your are given the following continuously compounded forward rates: oro,2 = 6.5%, or 2,3 = 8.0%, or 2,4 = 8.0%, and or 2,5 = 8.0%. You also know that Bond A, which matures at the end of year 5 and pays $10 at the end of year 1 through year 5, has a face value of $100. Its price is $109.76782. Compute the forward rate o13- (b) Assume the price of a 1 year zero remains the same as in the previous part. If the forward rate or2,3 is now 7.4% instead of 8.0%, is there an arbitrage opportunity? What would be your investment strategy and how large of a profit can you make buying or selling one unit of Bond A? Assume you can buy or sell zero coupons.