Consider the following term structure: Assume you expect the interest rate on a 1-year Treasury security issued one year
from today to be 4.0%. Describe the trades that you would make to earn a profit if you
are correct, assuming you are able to short sell securities and invest the proceeds from
the short sale immediately. Give an example.

Question

Consider the following term structure:  Assume you expect the interest rate on a 1-year Treasury security issued one year
from today to be 4.0%. Describe the trades that you would make to earn a profit if you
are correct, assuming you are able to short sell securities and invest the proceeds from
the short sale immediately. Give an example.

Quizplus · Accepted Answer

The Answer of Consider the following term structure:  Assume you expect the interest rate on a 1-year Treasury security issued one year
from today to be 4.0%. Describe the trades that you would make to earn a profit if you
are correct, assuming you are able to short sell securities and invest the proceeds from
the short sale immediately. Give an example.

Consider the Following Term Structure: Assume You Expect the Interest