only answer number 7 please
6. For the following questions, assume that you can earn 3.0% interest per year in a risk-free savings account for up to 10 years. You can also borrow any amount of funds at 3.0% interest per year for up to 10 years. For parts a-c, choose the better option.
(a)1 Receive $10,000 today.2 Receive $10,500 two years from today
(b)(1 Receive $5,000 five years from today.2 Receive $4,850 four years from today
(c) (1) Receive $10,000 at the end of each year for the next ten years.(2) Receive $75,000 today
d How much would you need to receive today to change your decision in part c?
7. Suppose the US Treasury rates are the same as in question above.
a What is the current market price of a one-year US Treasury bond that promises $1,000 one year from today?
b) Suppose you are offered an alternative investment that requires an initial investment of $960.00 today and pays $1,000.00 with certainty one year from today. Should you take the investment? Explain how you could make an arbitrage profit without spending any of your own money.
(c) Suppose you are offered an alternative investment that requires an initial investment of $985.00 today and pays $1,000.00 with certainty one year from today. Should you take the investment Explain how you could make an arbitrage profit without spending any of your own money.