Question: Show how you would conduct profitable arbitrage using the instruments and prices listed in each part below. In the Transaction column of each table,

Show how you would conduct profitable arbitrage using the instruments and prices listed in each part below. In the Transaction column of each table, list each instrument and show whether you are buying (long) or selling (short). Next, enter the values for the Time 0 and Time t cash flows with the correct signs. Finally, in the last row of each table, calculate the profit from the arbitrage. Carry out your calculations to 4 decimal places. Also answer the related questions below each table. Part A: An asset is currently trading at $100, the 15-month forward is currently trading at $102, and you can borrow or lend at 2% annual interest. Show how you would profitably arbitrage these price relationships. Transaction: Sell Asset Buy forward Lend (Buy Bond) Total Profit: Time 0 cash flows: $+100 -$100 0 At what forward price(s) will this arbitrage be unprofitable? Time t cash flows: -102

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