A security is currently trading at $97. It will pay a coupon of $5 in two months.

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A security is currently trading at $97. It will pay a coupon of $5 in two months. No other payouts are expected in the next six months.

(a) If the term structure is flat at 12%, what should be the forward price on the security for delivery in six months?

(b) If the actual forward price is $92, explain how an arbitrage may be created.

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Derivatives Principles And Practice

ISBN: 9780078034732

2nd Edition

Authors: Rangarajan Sundaram

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Question Posted: Jan 10, 2024 01:00 AM

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A security is currently trading at $97. It will pay a coupon of $5 in two months.

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a The forward price of a security can be calculated as the current spot price plus the present value of future income discounted at the riskfree rate ...View the full answer

Derivatives Principles And Practice

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