Arbitraging a mispriced forward loan

MediumFinance & Derivatives~5m

The 1-year spot rate is $3\%$ and the 2-year spot rate is $5\%$ (annual compounding). A dealer will lock in a 1-year loan that starts one year from now at a fixed rate of $6.00\%$ . This rate is off-market, so you can arbitrage it. What riskless profit (in dollars, to two decimals) can you lock in per $1{,}000 of the forward loan, realized at year 2?

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Fair forward: $(1+s_2)^2=(1+s_1)(1+f)$ , so $f=(1.05)^2/1.03-1$ .
Profit per $1{,}000 $=1000\times(f-0.06)$ at year 2.

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10.39 (± 0.1)

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Arbitraging a mispriced forward loan

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