Question: Please answer part b with the arbitrage table (cash flow tables) (better includes part a, thank you) Problem 1. (Arbitrage, 9') Two parties enter a

Please answer part b with the arbitrage table (cash flow tables) (better includes part a, thank you)

Please answer part b with the arbitrage table
Problem 1. (Arbitrage, 9') Two parties enter a stock forward at time t=0 that expires at t=T. The underlying stock pays a stream of dividends at a known and constant dividend yield 5. The risk-free rate is a known constant I\". Use continuous compounding. (a) Suppose I want to have one share of the stock at time T by buying some stocks at time 0 and hold them. How many shares ofthe stock shall I buy at t=0? (Assume I am allowed to trade a fraction ofa share.) (3') (b) The no-arbilrage forward price is FIJI = 509(r_6)r. Show the arbitrage tables (cash ow tables for the arbitrage strategies) when the forward is overpriced or underprieed, respectively. (6')

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