Question: Problem 1 . ( Arbitrage , 9 ' ) Two parties enter a stock forward at time t = 0 that expires at t =

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 .
The risk-free rate is a known constant r. 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 holding them. How many shares of the stock shall I buy at t=0?(Assume I am
allowed to trade a fraction of a share.)(3')
(b) The no-arbitrage forward price is
F0,T=S0e(r-)T
Show the arbitrage tables (cash flow tables for the arbitrage strategies) when the
forward is overpriced or underpriced, respectively. (6')
Problem 1.(Arbitrage,9') Two parties enter a stock forward at time t=0

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