Current price of XYZ mining company stock is AUD 60. The term structure of interest rate (continuously

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Current price of XYZ mining company stock is AUD 60. The term structure of interest rate (continuously compounded) is 10% p.a.

(i) What is the six-month forward price (F) of the stock?

(ii) If the six-month call price at strike F is equal to AUD 8 and the six-month put price at strike F is equal to AUD 7, explain why there is an arbitrage opportunity with these prices. Demonstrate the arbitrage scenario.

Related Book For answer-question

Applied Regression Analysis and Other Multivariable Methods

ISBN: 978-1285051086

5th edition

Authors: David G. Kleinbaum, Lawrence L. Kupper, Azhar Nizam, Eli S. Rosenberg

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Posted Date: Nov 21, 2022 05:24 AM

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Current price of XYZ mining company stock is AUD 60. The term structure of interest rate (continuously

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i The sixmonth forward price F of the stock is calculated as F S er 60 e 60 105 63 ii There is an a... View the full answer

Applied Regression Analysis and Other Multivariable Methods

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