A $ 1 0 0 stock pays a $ 1 dividend every 3 months with the first
Fantastic news! We've Found the answer you've been seeking!
Question:
A $ stock pays a $ dividend every months with the first dividend coming months from today. The continuous annual risk free rate is Suppose you observe a oneyear forward price on this stock of $ This forward contract is not correctly priced.
a Is this contract too expensive or too cheap? Explain.
b Based on your answer to part a what arbitrage would you undertake? Demonstrate the arbitrage.
Posted Date: