Stock XYZ pays dividends of $2 every three months, namely at T = 1/12, T =...
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Stock XYZ pays dividends of $2 every three months, namely at T₁ = 1/12, T₂ = 4/12,... Consider a forward contract on XYZ with maturity T = 11/12, i.e 11 months. If So 100, F = 99 and r = 0.05, construct an arbitrage strategy to exploit the mispriced Forward. Explain all the transactions (including what happens at dividend dates) that will need to be undertaken. Stock XYZ pays dividends of $2 every three months, namely at T₁ = 1/12, T₂ = 4/12,... Consider a forward contract on XYZ with maturity T = 11/12, i.e 11 months. If So 100, F = 99 and r = 0.05, construct an arbitrage strategy to exploit the mispriced Forward. Explain all the transactions (including what happens at dividend dates) that will need to be undertaken.
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The arbitrage strategy would be to buy the forward contract and sell the stock in order to exploit t... View the full answer
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