Question: A security is currently trading at $96. It will pay a coupon of $4 in three months. No other payouts are expected in the

A security is currently trading at $96. It will pay a coupon of $4 in three months. No other payouts are

A security is currently trading at $96. It will pay a coupon of $4 in three months. No other payouts are expected in the next six months. (a) If the relevant interest rate is 10% p.a. with continuous compounding, what should be the fair forward price of this security for delivery in six months? (2 marks) (b) If the market quoted six- month forward price of this security is $98, show how an arbitrage may be created by filling in your trades and values correctly in this table. (3 marks) Trade Cash Flows Initial To Interim T. Final T

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