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The spot price for a dividend paying stock is selling for $50 today. The stock...

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Finance

The spot price for a dividend paying stock is selling for $50 today. The stock will pay a $0.50 dividend in 2 months from now. The 2-month risk-free rate is 2% p.a. compounded continuously and the 6-month risk-free rate is 4% p.a. compounded continuously. A 6-month forward contract on the stock is available at a forward price of $52. Can an arbitrageur gain from this situation? If so, compute the arbitrage profit. What should be the true forward price?

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