Forward Price Evolution
Assuming an upward sloping yield curve, if a trader believes that the spot rate in one year is going to be lower than the predicted spot rate which is the forward rate (i.e. f(1,1)), then which investment strategy is more profitable for the trader? I know that both of the following strategies provide higher returns:
1) Buy a two year bond and sell after one year
2) Buy a forward contract today to profit from its appreciation in one year
Shouldn’t both these strategies be equal? Or are these not comparable?
Thanks for your help! Please let me know if you don’t understand the question and would like a numerical example.
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