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The risk-free rate of interest for borrowing is 3.2% per annum with continuous compounding, and the corresponding risk-free rate for lending is 1% per annum
The risk-free rate of interest for borrowing is 3.2% per annum with continuous compounding, and the corresponding risk-free rate for lending is 1% per annum lower. The dividend yield is 0.6% per annum. The current value of a stock index is 1,417. There are no other transaction costs involved in arbitrage. What is the highest six-month futures price that will preclude arbitrage? The answer is 1435.5. How do you solve this?
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