Hello everyone.

I am having some issues with the following questions!! Hopefully you will be able to shed some light on them.

1- Jorgen, CFA, obtains the following quotes for zero coupon government bonds all with a par value of $100. 

Type of price: Spot  Delivery(years):0 Maturity (years): 3  Price: 95.51

Type of price: Forward Delivery(years):2 Maturity (years): 3  Price: 94.55

Type of price: Spot  Delivery(years):0 Maturity (years): 2  Price: 92.45

Jorgen can earn arbitrage profits by:

The correct answer is –> buying the 2-year bond  in the spot market, going long the forward contract, and selling the 3-year bond in the spot market. 

Explanation: F(2,1)= P3/P2= 98.98 but is quoted at 94.55 and hence is cheap. 

How do they reach 98.98? I am confused!! thanks for your help.

2- When yield curve is downward sloping the TED spread is most likely to be: (Libor - T-bill yield)

a)zero

b)Negative

c)Positive - is the right answer. 

Souldn’t that be negative?

Many thanks in advance !