Question: Consider a 7-month forward contract on Apple Computer Inc. (AAPL). The current price of one share is $208, and the annual continuously compounded risk-free interest

Consider a 7-month forward contract on Apple Computer Inc. (AAPL). The current price of one share is $208, and the annual continuously compounded risk-free interest rate is 5%. Suppose the actual quoted forward price for a 7-month contract is 215.15 per share of AAPL.

Assume that the arbitrageur decides to set up an arbitrage trading strategy, starting with trading forward contract on 1 share of stock.In this arbitrage trading strategy, the arbitrageur needs toborrow or lend.

What is theprincipal or face value of the loan? Please doNOT present the sign;only show the cash amount.Please input 0 if there's no cash flows related to the transaction.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Pes Consider a 7-month forward contract on Apple Computer Inc. (AAPL). The current price of one share is $208, and the annual continuously compounded risk-free interest rate is 5%. Suppose the actual...

Consider a 7-month forward contract on Apple Computer Inc. (AAPL). The current price of one share is $208, and the annual continuously compounded risk-free interest rate is 5%. Suppose the actual...

Incorrect Question 7 0/1 pts Consider a 7-month forward contract on Apple Computer Inc. (AAPL). The current price of one share is $208, and the annual continuously compounded risk-free interest rate...

Consider a 7-month forward contract on Apple Computer Inc. (AAPL). The current price of one share is $208, and the annual continuously compounded risk-free interest rate is 5%. Suppose the actual...

Consider a 7-month forward contract on Apple Computer Inc. (AAPL). The current price of one share is $208, and the annual continuously compounded risk-free interest rate is 5%. Whats the no-arbitrage...

Consider an 8-month forward contract on Cisco Systems stock. Assume the current price of one share is $95 and the annual, continuously compounded risk-free interest rate is 5%. Answer the following...

Discuss the pros and cons of allowing companies to amass personal data for behavioral targeting.

In a music CD warehouse, sometimes orders become deadlocked because two different orders want the last two different CDs. For example, two people might simultaneously order More Themes for Young...

The major utility of the comparative method is that it ensures in studies of adaptation in groups of species. large enough sample size independence of data points that data have a linear relationship...

. (Cost of preferred stock) The preferred stock of Walter Industries Inc. currently sells for $35.93 a share and pays $2.53 in dividends annually. What is the firm's cost of capital for the...