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The spot price of an investment asset is $30 and the risk-free rate for all maturities is 1% with continuous compounding. The asset provides an
The spot price of an investment asset is $30 and the risk-free rate for all maturities is 1% with continuous compounding. The asset provides an income of $2 at the end of the first year and at the end of the second year. What is the three-year forward price? If a financial institution offers a forward contract with a forward price below what you have calculated what trades can you make to take advantage of this arbitrage opportunity
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