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Problem 4. Stock ABC's price is $30 today. The risk free rate of interest is 5% with continuous compounding. You don't expect the company to
Problem 4. Stock ABC's price is $30 today. The risk free rate of interest is 5% with continuous compounding. You don't expect the company to pay out any dividends in the near future. If the 9-month forward contract on the stock is $35, what arbitrage opportunities does this create? If the forward price is $30, what arbitrage opportunities could there be? What should be the forward price that rule out any arbitrage opportunities
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