The following securities are available: Forward contract 1: a forward contract on XYZ stock expiring at time T. The downpayment is $12 and the delivery price is $40. Forward contract 2: a forward contract on XYZ stock expiring at time T. The downpayment is $3 and the delivery price is $50. A zero-coupon bond paying $1 at time T. Its price today is $0.97. Show that there is an arbitrage opportunity. Complete both tables. Use at least 3 decimal places. Table 1: Delivery Time- Position Time-0 Time-T Security price unit price (Units) value value Forward contract 1 $40 $12 $50 $3 Forward contract 2 A zero-coupon bond with $1 maturity value N/A .9700 Total value N/A N/A N/A 0 In the above table, in order to demonstrate that there is arbitrage, the time-T value of the combined position should be positive. Table 2: Time- Position Time- Time-T Delivery price Security unit price (Units) value value Forward contract 1 $40 $12 $50 $3 Forward contract 2 A zero-coupon bond with $1 maturity value N/A 9700 Total value N/A N/A N/A 0 In the above table, in order to demonstrate that there is arbitrage, the time-0 value of the combined position should be negative. Or if you prefer, write down cash inflows (and change the heading), and then the total should be positive. The following securities are available: Forward contract 1: a forward contract on XYZ stock expiring at time T. The downpayment is $12 and the delivery price is $40. Forward contract 2: a forward contract on XYZ stock expiring at time T. The downpayment is $3 and the delivery price is $50. A zero-coupon bond paying $1 at time T. Its price today is $0.97. Show that there is an arbitrage opportunity. Complete both tables. Use at least 3 decimal places. Table 1: Delivery Time- Position Time-0 Time-T Security price unit price (Units) value value Forward contract 1 $40 $12 $50 $3 Forward contract 2 A zero-coupon bond with $1 maturity value N/A .9700 Total value N/A N/A N/A 0 In the above table, in order to demonstrate that there is arbitrage, the time-T value of the combined position should be positive. Table 2: Time- Position Time- Time-T Delivery price Security unit price (Units) value value Forward contract 1 $40 $12 $50 $3 Forward contract 2 A zero-coupon bond with $1 maturity value N/A 9700 Total value N/A N/A N/A 0 In the above table, in order to demonstrate that there is arbitrage, the time-0 value of the combined position should be negative. Or if you prefer, write down cash inflows (and change the heading), and then the total should be positive
