A three-month forward contract on a non-dividend-paying asset is trading at $90, while the spot price is

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A three-month forward contract on a non-dividend-paying asset is trading at $90, while the spot price is $84.

(a) Calculate the implied repo rate.

(b) Suppose it is possible for you to borrow at 8% for three months. Does this give rise to any arbitrage opportunities? Why or why not?

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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 three-month forward contract on a non-dividend-paying asset is trading at $90, while the spot price is

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The implied repo rate is 1 1 T In F In S In 90 In 84 027957 025 or 2798 Since we can borrow ...View the full answer

Derivatives Principles And Practice

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