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Question 2: (10 points) Consider a long forward contract to purchase a non-dividend-paying stock in...

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Question 2: (10 points) Consider a long forward contract to purchase a non-dividend-paying stock in 3 months. Assume the current stock price is $50, and the 3-month risk-free interest rate is 5% per annum. a) Suppose that the forward price is relatively high at $53. (2 points) What is the strategy of an arbitrageur? (2 points) How much will the arbitrageur make? b) Suppose that the forward price is relatively low at $49. (2 points) What is the strategy of an arbitrageur? (2 points) How much will the arbitrageur make? c) (2 points) What should the forward price be? Question 3: (30 points) Question 2: (10 points) Consider a long forward contract to purchase a non-dividend-paying stock in 3 months. Assume the current stock price is $50, and the 3-month risk-free interest rate is 5% per annum. a) Suppose that the forward price is relatively high at $53. (2 points) What is the strategy of an arbitrageur? (2 points) How much will the arbitrageur make? b) Suppose that the forward price is relatively low at $49. (2 points) What is the strategy of an arbitrageur? (2 points) How much will the arbitrageur make? c) (2 points) What should the forward price be? Question 3: (30 points)

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