4. A three-month forward contract on a non dividend paying asset is trading at 90, while the...

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4. A three-month forward contract on a non dividend paying asset is trading at 90, while the spot price is 84.

a. What is the continuously compounded implied rate of return?

b. Suppose it is possible for you to borrow money for three months at a rate of 8% based on continuous compounding.Does this give rise to any arbitrage opportunities?If so, describe what steps you would take to take advantage of the arbitrage opportunity.

c. If you determine an arbitrage opportunity exists, determine the arbitrage profit at the end of the three-month period.

Posted Date: May 18, 2024 05:04 PM

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4. A three-month forward contract on a non dividend paying asset is trading at 90, while the...

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