Question: VERSION 26 QUESTION 3 Based on the risk-free yield curve given below and assuming semi-annual compounding using a 30/360 day count convention (as used in

VERSION 26 QUESTION 3 Based on the risk-free yield curve given below and assuming semi-annual compounding using a 30/360 day count convention (as used in class) calculate: 1} the discount factors (6 decimal places) 2) the zero-coupon yield curve (spot rate curve) (6 decimal places) 3) All implied forward rates contained within the yield curve (6 decimal places) 4) Suppose you are quoted a 6-month forward rate starting 6 months from today (g5 F*4 o) that is 10 basis points (0.10%) higher than the theoretical 6-rmonth forward rate starting 6 months from today (p = Fy o) that you calculated in part 3. Create an investment strategy using an arbitrage table, to exploit this arbitrage opportunity. 5) Suppose you are quoted a 6-manth forward rate starting 6 months from today (, s F*, ) that is 15 basis points (0.15%) lower than the theoretical 6-month forward rate starting 6 months from today (, F, ) that you calculated in part 3. Create an investment strategy using an arbitrage/payoff table, to exploit this arbitrage opportunity. DISCOUNT | SPOT RATE 2YR 25YR 35YR 4.0YR 4.5YR 6-MO. | YIELD 6MO 1YR 1.5YR FWD FWD 3.0YR FWD FWD FWD Period | CURVE FWD RATES |FWD RATES | FWD RATES| RATES RATES FWD RATES | RATES RATES RATES

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