The price of S&R stock is $1,100 today, the risk-free rate is 5% per annum,...
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The price of S&R stock is $1,100 today, the risk-free rate is 5% per annum, and the continuous dividend yield per annum on the stock is 0.
(a) Suppose you observe a 6-month forward price of $1,135 on the market. What is the total arbitrage profit as the future value at the end of 6 months? What is the total arbitrage profit as the present value today? Please use the table of cash flow to analyze.
(b) Suppose you observe a 6-month forward price of $1,120 on the market. What is the total arbitrage profit as the future value at the end of 6 months? What is the total arbitrage profit as the present value today? Please use the table of cash flow to analyze.
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