1.You just inherited 10,000 shares of Amazon.com Inc. stock from your great uncle.You would like to liquidate this position, but not until 9 months from now (due to personal tax reasons).But you also don't like the thought of waiting and having the price fluctuate before you can sell the stock.So you look into a forward contract for your position.To avoid confusion, assume that the current price of the stock is $3460 per share.Amazon historically has never paid dividends.You assume that you can borrow and/or lend at 1.4% interest, compounded continuously.

a.What should be the forward price on a forward contract for Amazon stock that matures in 9 months?Assume that the cost-of-carry assumptions are met.

b.If you enter into the contract above, what would be your profits/loss on your contract in the following future scenarios?

i.AMZN stock price in 9 months = $3510

ii.AMZN stock price in 9 months = $3380

c.As you're about to call up your broker, you see a newsflash that Amazon is going to begin paying dividends on its stock.And because Amazon wants to be different, they will be paying a 2% annual dividend yield, payable continuously. How does your answer to (a) above change as a result of this information?

d.When you call your broker, you find out that you can only borrow at 1.5% interest, and lend at only 1.3% interest.There is also a 1% transaction charge (purchase or short).Calculate the range of prices that this forward contract can take without creating an arbitrage opportunity.