Question: a. c. Question 2 (10 marks / Arbitrage profit) You observe the following market interest rates for both borrowing and lending: One-year rate=5% b. Two-year

a. c. Question 2 (10 marks / Arbitrage profit) You observe the following market interest rates for both borrowing and lending: One-year rate=5% b. Two-year rate=6% One year rate one year from now = 7.25% Assume that the expectations theory of interest rates holds and you have $50,000. Can you take advantage of the above rates to earn a riskless profit? Show your steps in detail on how to earn this riskless profit by using $50,000 cash

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