Question $3$

A non$-$dividend$-$paying stock is currently priced at $99,$ the continuously com$-$

pounded annual interest rate is $0\mathrm{.}04.$ A forward delivering one share of the

stock after $2$ years has a strike $103.$ What arbitrage opportunity would you

undertake $?($Hint : if the forward is over$-$priced compared to its theoretical

price, then take a short position on the forward. Otherwise, if the forward is

under$-$priced, take a long position on the forward. $)$