Exercise 1 (5) The S&R index pays dividends at a continuously compounded rate 8. The current value of the index is 1000. The continuously compounded risk-free rate is r = 4%. You can purchase a 3-month 1050-strike European call for 32.47 and purchase a 3-month 1050-strike European put for 74.52. a) Find the three-month prepaid forward price on this index. b) Suppose the forward price on this index is 1008.53, find an arbitrage strategy and give the arbitrage profit