Question
Suppose XYZ stock costs $100/share today and is expected to pay $1.25/share quarterly dividend with the first coming 3 months from today and the last
Suppose XYZ stock costs $100/share today and is expected to pay $1.25/share quarterly dividend
with the first coming 3 months from today and the last just prior to the end of the year (from today).
Price a one-year forward contract on the XYZ stock if you know that the annual continuously
compounded risk-free rate is 10%. If the one year forward contract on XYZ stock is listed at $108, do
you see any arbitrage profit opportunity in this case? If yes, what strategy you will apply to reap that
profit? Please explain your answer by detailing the cash flows today and at expiration to realize the
arbitrage profit
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The Legal Environment Today Summarized Case Edition
Authors: Roger LeRoy Miller
8th Edition
130526276X, 978-1305279407, 1305279409, 978-1305704930, 1305704932, 978-1305262768
