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You observe the following information on a stock: The spot price of a non-dividend-paying stock is $32 The 9-month forward price is $32 The 9-month
- You observe the following information on a stock:
- The spot price of a non-dividend-paying stock is $32
- The 9-month forward price is $32
- The 9-month US$ interest rate is 5% per annum
- a) Is there an arbitrage opportunity? If there is, construct an arbitrage transaction and show the net cash flows.
- b) If the current forward price allows arbitrage transactions, what should be the forward price without arbitrage opportunities?
- The spot price of a non-dividend-paying stock is $32
- The 9-month forward price is $32
- The 9-month US$ interest rate is 5% per annum
- a) Is there an arbitrage opportunity? If there is, construct an arbitrage transaction and show the net cash flows.
- b) If the current forward price allows arbitrage transactions, what should be the forward price without arbitrage opportunities?
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