Problem#1 Part C: (This is in continuation with earlier two questions.)

Suppose that in the fixed-income securities market, the two-year and three-year spot interest rates are 8.500% and 10.000%, respectively. (That is, R^Mrkt_0,2 = 8.500% and R^Mrkt_0,3 = 10.000%.)

In addition, in the market, the current one-year forward rate two-years from now (F^0,Mrkt_2,1) is 12.000%.

Assume that an arbitrager can borrow or lend exactly $1,000 in the forward interest rate market. They execute an arbitrage strategy such that their net cash flows at time t=0 (now) and at the end of Year 2 (t=2) are equal to zero. However, they have a maximum-possible positive net cash flow at the end of Year 3 (t=3). What is the amount of that maximum positive net cash flow at the end of Year 3 (t = 3)?

(Please make sure that, we are putting a constraint of $1,000 for the forward interest rate transaction. It is mainly to have the same correct answer for each of us. This is to accommodate limitation of the machine grading. Thank you!)

(Round off your final answer to four decimal places.)