A stock is currently trading at $100. The one-year spot rate is 10%, continuously compounded, at which

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A stock is currently trading at $100. The one-year spot rate is 10%, continuously compounded, at which you can save or borrow. The stock is assumed to pay no dividend in the coming year. The forward price of a forward contract on the stock with a 1-year maturity is $110.

Is there an arbitrage opportunity? If yes, can you construct a strategy to make profits both today and one year later?

Related Book For answer-question

Foundations of Financial Management

ISBN: 978-1259024979

10th Canadian edition

Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta

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Posted Date: Oct 17, 2023 01:07 PM

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A stock is currently trading at $100. The one-year spot rate is 10%, continuously compounded, at which

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Yes there is an arbitrage opportunity based on the given information Heres a strategy to exploit thi... View the full answer

Foundations of Financial Management

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