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What is the amount of the arbitrage profit

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Assume the forward contract is actually trading at Php4800, rather than the no-arbitrage price. In this situation, we reverse the arbitrage trades and make an arbitrage profit as follows. We are selling the bond short today in order to acquire a long position in the forwardcontract, committing us to buy the bond in 150 days at the forward price of Php4800. The Php4777 earnings from the short sale are invested for fivemonths at a 6.28% annual rate. This case allows us to receive, at the settlement date, the investment proceeds valued at the no-arbitrage pricedetermined, accept delivery of the bond in return for a payment of Php4800, and close out our short position by delivering the bondwe just purchased at the forward price.

A. What is the amount of the arbitrage profit?

B. Illustrate, in a table, the total cash flow of this situation of a reverse cash and carry arbitrage given that the forward is underprice, currently and 5months from current time.

Reference no: EM133069067

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