Question 1. [No-Arbitrage Determination of Forward Price] The information of the forward price and stock price is provided below:

Forward price F0 $226

Stock/Spot Price S0 $204

Maturity date of Forward Contract (2 years) T 2

Risk-free Rate r 4%

Step (1) By using the information above and applying the Cost-of-Carry Model, verify if there is an arbitrage opportunity. Step (2) In addition, clearly explain and illustrate the arbitrage (Cash-and-Carry) strategy and compute the arbitrage profit. Hint:the Cash-andCarry strategy should demonstrate how a portfolio of forward, stock, and risk-free lending/borrowing can produce risk-free arbitrage profit.