Question 14 (1 point) Today is t = 0. The price of a Dollar 8-year zero coupon bond with Face Value = F is $1,600 10,5 = 2% (Dollar interest rate) f20,5 = 8% (Dollar forward interest rate) 20,5 = 4% (Euro forward interest rate) 0 Contract X: for every $2 you give the bank at t = 8 they give you back 3 Euros at t = 20 (or for every $2 you borrow at t = 8 you have to pay back 3 Euros at t = 20) Contract Y: for every $2 you give the bank at t = 0 they give you back 6 Euros at t = 25 . (or for every $2 you borrow at t = 0 you have to pay back 6 Euros at t = 25) Note: for a given currency, a forward interest rate in that currency allows you to lock in a lending or borrowing rate for that currency for a certain period of time. Assuming there is no arbitrage, what is the value of F? Select the answer below that is closest to the correct value. 876 1,089 1,315 d 2,958 1,000 2,178 2,630 2,000 Question 15 (1 point) Based on the question above, assume that the value of F is $1 greater than what it should be if there were no arbitrage. Assume that to exploit this your arbitrage strategy will involve trading 2 units of the bond at t = 0 and will be built in such away that the arbitrage profit is realized at t = 25. Among other positions, which of the below will also be a component of your arbitrage strategy? Use contract X to borrow $3,200 Use contract X to lend $3,200 O Use contract Y to borrow $3,200 Use contract Y to lend $3,200 Use the dollar forward rate to borrow $3,200 O d None of the above