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Assumptions: Unlimited selling and short selling are allowed. Interest is compounded continuously. 1. Consider a forward contract on an underlying share now (t=0) worth R

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Assumptions: Unlimited selling and short selling are allowed. Interest is compounded continuously. 1. Consider a forward contract on an underlying share now (t=0) worth R 150, for delivery at t=9 months. The risk-free rate is 6% p.a. (a) Determine the fair delivery price. (b) Show that an arbitrage portfolio can be set up if the delivery price is instead set to R 160

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