Question
Question 2. No-Arbitrage Determination of Forward Price [20%] The information of the forward price and stock price is provided below: Forward price Fo $567 Stock/Spot
Question 2. No-Arbitrage Determination of Forward Price [20%] The information of the forward price and stock price is provided below:
Forward price | Fo | $567 |
Stock/Spot Price | So | $485 |
Maturity date of Forward Contract (3 years) | T | 3 |
Risk-free Rate | r | 5% |
Step (1) Using the information above and applying the Cost-of-Carry Model, verify if there is an arbitrage opportunity.
[in your answers, show all steps/formula, calculation, and result as clearly as possible]
Step (2) In addition, clearly explain and illustrate the arbitrage (Cash-and-Carry or Reverse Cash-and-Carry) strategy and compute the arbitrage profit.
[in your answers, show all steps/formula, calculation, and result as clearly as possible]
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