Reference no: EM133073058

There is a T-bill futures contract expiring in 70 days being traded.

The 91-day T-bill yield is 3.44%, the 161-day T-bill yield is 0.1%, and the risk-free rate is 0.05%. If the market price on the T-bill future contract is 101, How will traders arbitrage?

1. borrow $99.9559 at the risk-free rate, buy a 161-day spot T-bill for S0(161) = 99.9559, and take a short position in a T-bill futures contract expiring in 70 days at the futures prices of 101

2. borrow $99.1603 at the risk-free rate, buy a 91-day spot T-bill for S0(91) = 99.1603, and take a short position in a T-bill futures contract expiring in 70 days at the futures prices of 101

3. Sell the T-bill on the spot future contract at 101, repays the principal and interest on the loan of 99.9655

4. Sell the T-bill on the spot future contract at 101, repays the principal and interest on the loan of 99.1698