The spot price of an investment asset is $25 and the risk-free rate is 8%, 8.5% and 9.5% for one-year-, two-year- and three-year-maturity, respectively. The asset provides an income of $4 at the end of the first year and at the end of the second year.

*Note: all interest rates are quoted with continuous compounding in this problem

#1) What is the three-year forward price for no arbitrage opportunity?

#2) If the 3-year forward price in the market is quoted as $21, what arbitrage opportunities does this create?

		#1) theoretical forward price = $35.84
		#1) theoretical forward price = $20.84
		#1) theoretical forward price = $23.85
		#1) theoretical forward price = $29.85
		#2) long forward contract, and short the underlying asset in the spot market
		#2) short forward contract, and short the underlying asset in the spot market
		#2) long forward contract, and buy the underlying asset in the spot market
		#2) short forward contract, and buy the underlying asset in the spot marke