Question: a) Suppose that you enter into a six-month forward contract on a non-dividend-paying stock when the stock price is $250 and the risk-free interest rate

a) Suppose that you enter into a six-month forward contract on a non-dividend-paying stock when the stock price is $250 and the risk-free interest rate (with continuous compounding) is 8% per annum. What is the forward price?

b) If you find some dealers who post a 6-month forward offer price at $255, is there an opportunity to arbitrage? How much arbitrage profit can you earn from one share of this stock?

c) If you can only find dealers who post 6-month forward offer prices higher than your calculated in Part a), can you arbitrage to earn a sure profit?

d) Alternative to Part c), suppose you can only find dealers who post 6-month forward bid prices lower than your calculated in part a), can you arbitrage to earn a sure profit?

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