Question: If the current price of a nondividend paying stock is 32

If the current price of a nondividend-paying stock is $32 and a one-year futures contract on that stock has a contract price of $35, explain how an investor could create an "off-market" long position in a forward contract at an exercise price of $25. Would this synthetic contract require a cash payment from either the long or the short position? If so, explain which party would have to make the payment and how that payment should be calculated.

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  • CreatedDecember 17, 2014
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