Suppose that today?s forward curve is flat at 6%.  All
rates are continuously-compounded, so (for example) today?s price for
a pure discount bond with $10,000 notional maturing c years from today
is ($10,000)*exp(-.06*c).

Let t denote time, with t=0 being ?now? and t being measured in years.
 Suppose we know that at date t=1 the forward curve will jump, based
on the outcome of a ?fair? coin toss, to become either ?flat at 5%? or
?flat at 7%? (for all dates  s ³ 1).

Is there arbitrage in this model? If you answer ?yes?, then produce a
strategy for getting arbitrage profits; i.e., build a portfolio with
initial market price 0 which, at some later date, has the property
that its price is non-negative in every state and is positive with
positive probability.
If you answer ?no?, then produce an equivalent martingale measure.