Problem Suppose that the risk free rate is 8%. However as a small investor you can invest money at 7/ only and borrow at 10%. Does either of the strategies on the proof of the last theorem discussed in class give an arbitrage profit if F(0,1) = 89 and 5(0) = 83, and a 2 dividend is paid on the middle of the year. that is at time?

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To determine if either of the strategies discussed in class can give an arbitrage profit we need to calculate the cost of implementing each strategy a... View the full answer