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Suppose that there is a forward contract on a non-dividend paying stock. The spot price of the stock is $80, and it would be either

Suppose that there is a forward contract on a non-dividend paying stock. The spot price of the stock is $80, and it would be either $85 or $78 in the next time period. The forward price is $83. The risk-free interest rate is constant at 5%.

What is the value of the forward contract?

Given the answer to (a), is there an arbitrage opportunity available?

If there is an arbitrage opportunity, provide a strategy to exploit the arbitrage.

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