Question 8c of reading 52 asks to calculate the arbitrage profit for the mispriced future’s
How are they coming up with 1.465 - 1.4176 as the pay off on the trade? I get where the 1.4176 is coming from but I don’t understand why the 1.465 isn’t discounted? Said in an different way, shouldn’t we discount 1.465 of the Future and compare it to the discounted spot rate of 1.430? Seems like the question misses the “cost” of the trade somehow
I was expecting a much smaller arbitrage profit (1.44104 - 1.4390)
Here’s my math:
[1.4390 / (1.058)^.27] - [1.645 /(1.063)^.27]
or Market Futures Price - expected FP from given interest rates
thoughts?