A non-dividend paying stock has a current price of $4. The risk free rate is 5% pa given as a continuously compounded rate. A 6 month year futures contract on the stock has a futures price of $4. You suspect that something is mis-priced and would like to conduct a risk-free arbitrage that requires zero capital. Which of the following steps about arbitraging the situation is NOT correct?

Answer rating: 100% (QA)

The situation is not correct Because in the situation stock price and future price are eq... View the full answer