A stock index which pays no dividends has a spot price of $3,200. You are an...
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A stock index which pays no dividends has a spot price of $3,200. You are an arbitrageur with a continuously compounded borrowing rate of 5% and a continuously compounded lending rate of 4%. There is a $1.00 transaction fee (paid at time 0 only), for going either long or short the forward contract. There is also a $3.20 fee for buying or selling the index. The forward contract is cash-settled, so the stock index transaction fee is paid at both times 0 and 1. What are the no-arbitrage bounds for the 1- year forward price? O $3,326.39 A stock index which pays no dividends has a spot price of $3,200. You are an arbitrageur with a continuously compounded borrowing rate of 5% and a continuously compounded lending rate of 4%. There is a $1.00 transaction fee (paid at time 0 only), for going either long or short the forward contract. There is also a $3.20 fee for buying or selling the index. The forward contract is cash-settled, so the stock index transaction fee is paid at both times 0 and 1. What are the no-arbitrage bounds for the 1- year forward price? O $3,326.39
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