Answer Happy

The 90-day LIBOR rate is 5% per annum and the 180-day LIBOR rate is 5.1% per annum both expressed with continuous compounding and an actual/365 day count. The Eurodollar futures price for a contract maturing in 90 days is quoted as 94.80. Consider the following statements. Statement 1. The forward rate with quarterly compounding and on the basis of a 360 day year is (close to) 5.05%. Statement II. The futures rate with continuous compounding and on the basis of a 365 day year is (close to) 5.24%. Statement III. A riskless arbitrage would involve buying the futures contract, borrowing at the 180-day rate, and lending at the 90-day rate. Which of the following is correct? O a. Statement Ill is incorrect, Statements I and Il are correct. O b. Statements I, II and Ill are incorrect. O c. Statements I, II and Ill are correct. d. Statement I is incorrect, Statements II and III are correct. e. Statement II is incorrect, Statements I and Ill are correct.