Suppose that the bid price of Google stock is $498 per share and the ask...
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Finance
Suppose that the bid price of Google stock is $498 per share and the ask price is $501 per share. Google does not pay any dividends. Short selling the stock is feasible at zero cost. You can borrow at an annual rate of 5.9 and lend at 4.6% (simple compounding).
a) What is the highest forward price that will not allow arbitrage? Please round to two decimal places.
b) The commission of closing a forward position is $1.7 per share. What is the highest forward price that will not allow arbitrage? Please round to two decimal places.
c) The commission of closing a forward position is $0.7 per share. The short sell cost is $5 payable when the borrowed stock is returned. What is the lowest forward price that will not allow arbitrage? Please round to two decimal places.
d) The commission of closing a forward position is $1.9 per share. The short sell cost is $4 payable when the borrowed stock is returned. What is the highest forward price that will not allow arbitrage? Please round to two decimal places.
e) What should the price of a forward contract on Google maturing one year later be? Please round to two decimal places.
f) What is the lowest forward price that will not allow arbitrage? Please round to two decimal places.
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