# Question: Verify that when there are transaction costs the lower no arbitrage

Verify that when there are transaction costs, the lower no-arbitrage bound is given by equation (5.12).

## Answer to relevant Questions

Suppose the S&R index is 800, and that the dividend yield is 0. You are an arbitrageur with a continuously compounded borrowing rate of 5.5% and a continuously compounded lending rate of 5%. Assume that there is 1 year to ...A $50 stock pays a $1 dividend every 3 months, with the first dividend coming 3 months from today. The continuously compounded risk-free rate is 6%. a. What is the price of a prepaid forward contract that expires 1 year from ...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 ...Suppose that copper costs $3.00 today and the continuously compounded lease rate for copper is 5%. The continuously compounded interest rate is 10%. The copper price in 1 year is uncertain and copper can be stored ...Suppose you are the counterparty for a lender who enters into an FRA to hedge the lending rate on $10m for a 90-day loan commencing on day 270. What positions in zero-coupon bonds would you use to hedge the risk on the FRA?Post your question