Question A non-dividend paying stock currently sells for 100. One year from now the stock sells for 110. The continuously compounded risk-free interest rate is 6%. A trader purchases the stock in the following manner: i) The trader pays 100 today ii) The trader takes possession of the stock in one year Determine which of the following describes this arrangement. Possible Answers A Outright purchase B Fully leveraged purchase C Prepaid forward contract D Forward contract E This arrangement is not possible due to arbitrage opportunities The current spot price for one ounce of gold is 1,238.74. Company A and Company B enter into two forward contracts; one expires at the end of 6 months and the other expires at the end of 9 months. Each forward contract calls for a physical exchange of 100 ounces of gold. The spot price for one ounce of gold 6 months from today is 1,263.76 and coincidentally, that is the spot price for one ounce of gold in 9 months. Company A is short in both contracts (and hence Company B is long in both). Each contract is held to expiration. The continuously compounded interest rate is 4%. What is the total profit realized by Company B after 9 months? Possible Answers -1,271 0 c 1,271 D 2,502 3.773