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The underlying asset on a futures contract pays interest rate of 5% paid semiannually. The price of the asset is $100. The futures contract settles
The underlying asset on a futures contract pays interest rate of 5% paid semiannually. The price of the asset is $100. The futures contract settles in 6 months. Assume that the next interest savent will be paid in 6 months. The borrowing/lending rate is 8 percent. The futures price is 99.75. Show that there is arbitrage, and calculate the arbitrage profit.
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