You observe the 1-year and 4-year interest rates p.a. in the table below. Assume that there is no term
premium, that actual and inflation expectations are zero and that actual 1-year interest rates are as expected in t = 1, ..4. Is there an arbitrage opportunity? If yes, what is your arbitrage profit if you can borrow at most $10 million? Show all the steps in your calculations.
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