1. A share of stock A is trading at $250. Stock A is expected to pay a dividend of $3 per share at year- end. The risk-free rate in the economy is 6%.

   1. What is the 1-year futures price on stock A?

   2. Assume the one-year futures price is $263.5 Does this constitute an arbitrage opportunity? How would an arbitrageur exploit it? Assume the dividend is paid out immediately preceding delivery on the futures.

   3. Suppose the one-year futures price were $260.5 - would this constitute an arbitrage opportunity? How would an arbitrageur exploit it? (Note: If a stock that is sold short pays out a dividend, the short seller must pay the original owner of the stock the amount of the dividend.)