# Use THIS IRP formula: is ≈ iuk +/- %CHG in £. Use this formula (FS) / S to calculate the forward discount/premium (or the %CHG function on your calculator).

Use THIS IRP formula: is ≈ iuk +/- %CHG in £. Use this formula (FS) / S to calculate the forward discount/premium (or the %CHG function on your calculator).

4. (5 points) (E+F) One-year zero coupon treasury bonds are selling for £975.61 in the U.K. and for \$963.86 in the U.S. Assume \$1,000 face value in dollars for the U.S. bond and £1,000 face value for the U.K bond, and round interest rates to two decimal places, e.g. 2.50%. The current spot ex-rate is \$1.5350/£. Use THIS IRP formula: is ≈ iuk +/- %CHG in £. Use this formula (FS) / S to calculate the forward discount/premium (or the %CHG function on your calculator). e. Starting with either \$1M or £1M, calculate and report the covered interest arbitrage profit you could make (express the arbitrage profit in both pounds and dollars in one year, using the one-year forward ex-rate). Explain each transaction in words. f. Based on your answers to part d and e, explain what would happen to interest rates and bond prices in the U.K. and explain why that would happen in an essay. What would happen to interest rates and bond prices in the U.S. and why would that happen?

Use THIS IRP formula: is ≈ iuk +/- %CHG in £. Use this formula (FS) / S to calculate the forward discount/premium (or the %CHG function on your calculator).

Use THIS IRP formula: is ≈ iuk +/- %CHG in £. Use this formula (FS) / S to calculate the forward discount/premium (or the %CHG function on your calculator).

Use THIS IRP formula: is ≈ iuk +/- %CHG in £. Use this formula (FS) / S to calculate the forward discount/premium (or the %CHG function on your calculator).

Use THIS IRP formula: is ≈ iuk +/- %CHG in £. Use this formula (FS) / S to calculate the forward discount/premium (or the %CHG function on your calculator).

Use THIS IRP formula: is ≈ iuk +/- %CHG in £. Use this formula (FS) / S to calculate the forward discount/premium (or the %CHG function on your calculator).

Use THIS IRP formula: is ≈ iuk +/- %CHG in £. Use this formula (FS) / S to calculate the forward discount/premium (or the %CHG function on your calculator).

Use THIS IRP formula: is ≈ iuk +/- %CHG in £. Use this formula (FS) / S to calculate the forward discount/premium (or the %CHG function on your calculator).

Use THIS IRP formula: is ≈ iuk +/- %CHG in £. Use this formula (FS) / S to calculate the forward discount/premium (or the %CHG function on your calculator).

Use THIS IRP formula: is ≈ iuk +/- %CHG in £. Use this formula (FS) / S to calculate the forward discount/premium (or the %CHG function on your calculator).

Use THIS IRP formula: is ≈ iuk +/- %CHG in £. Use this formula (FS) / S to calculate the forward discount/premium (or the %CHG function on your calculator).

Use THIS IRP formula: is ≈ iuk +/- %CHG in £. Use this formula (FS) / S to calculate the forward discount/premium (or the %CHG function on your calculator).

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