Assume that the continuous annual risk-free rate is 6% and the current spot price of Target Corporation is $90.

1. If Target is going to pay a $2.50 dividend once per year for the next 3 years, what is the prepaid forward price for a contract with 3 years to maturity, given a current price of $90? Assume maturity is immediately after the 3rddividend.
2. What should be the normal forward price on a contract maturing in 3 years?
3. If the observed normal forward price is $105, what is the implied repo rate in this situation?
4. If, as in part c, the observed normal forward price is $105, how would you make an arbitrage strategy to take advantage of any mispricing? (buying/selling fractions of a share is ok)
5. What would be the arbitrage profit from the strategy in part d?