1. You just inherited 10,000 shares of Amazon.com Inc. stock from your great uncle. You would like to liquidate this position, but not until 9 months from now (due to personal tax reasons). But you also dont like the thought of waiting and having the price fluctuate before you can sell the stock. So you look into a forward contract for your position. To avoid confusion, assume that the current price of the stock is $3460 per share. Amazon historically has never paid dividends. You assume that you can borrow and/or lend at 1.4% interest, compounded continuously.

1. What should be the forward price on a forward contract for Amazon stock that matures in 9 months? Assume that the cost-of-carry assumptions are met.

2. If you enter into the contract above, what would be your profits/loss on your contract in the following future scenarios?

1. AMZN stock price in 9 months = $3510
2. AMZN stock price in 9 months = $3380

3. As youre about to call up your broker, you see a newsflash that Amazon is going to begin paying dividends on its stock. And because Amazon wants to be different, they will be paying a 2% annual dividend yield, payable continuously. How does your answer to (a) above change as a result of this information?

4. When you call your broker, you find out that you can only borrow at 1.5% interest, and lend at only 1.3% interest. There is also a 1% transaction charge (purchase or short). Calculate the range of prices that this forward contract can take without creating an arbitrage opportunity.