Today is January 30, 2021. Open Bank offers you the opportunity to enter into a forward

contract to sell Metro Corp share on October 30, 2022 for $880. The interest rate is 5%

(continuously compounded). The current price of Metro Corp share is $800 and Metro Corp

will not pay any dividend in next three years according to the company announcement.

(a) Calculate the no-arbitrage forward price of Metro Corp share.

Show your calculations.

(b) Is there an arbitrage opportunity?

If so, explain why and describe what actions to take to make the arbitrage

profit. How much is the profit? Show your calculation.

If not, explain why not.