The S R index spot price is 1100 the risk free rate
The S&R index spot price is 1100, the risk-free rate is 5%, and the continuous dividend yield on the index is 2%.
a. Suppose you observe a 6-month forward price of 1120. What arbitrage would you undertake?
b. Suppose you observe a 6-month forward price of 1110. What arbitrage would you undertake?
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