Suppose you enter into a forward contract to buy a (non-dividend paying) stock in one year. Suppose
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Suppose you enter into a forward contract to buy a (non-dividend paying) stock in one year. Suppose that the spot price of the stock is £50 and the annual risk-free rate is 2%. Suppose that the forward price is £52.
Propose a trading strategy that delivers positive returns without any risk or cost today. Now suppose that the forward price is £50.5. What should be the forward price so that there are no arbitrage opportunities?
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
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