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1 . You collect data from your broker - dealer regarding the bid and ask prices of a stock and a one - year zero
You collect data from your brokerdealer regarding the bid and ask prices of a stock and a oneyear zerocoupon bond. The bond has a face value of $ and the stock is assumed to pay no dividends over the coming year. This information is summarized in Table below.
Table : Bond and Stock Price
You can also enter into a forward contract on the stock with a oneyear maturity. The forward price, ie F for this contract is $ Assuming that entering into the forward contract incurs no cost what conditions must x and y satisfy to ensure the absence of arbitrage?
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