Suppose that the current stock price is 105 per share. The current two-year risk-free interest rate...

Transcribed Image Text:

Suppose that the current stock price is 105 per share. The current two-year risk-free interest rate is 4.5%. There are three two-year forward contracts available, with the following two- year forward prices: Contract A Price per share 105 B 114.89 C 108.5 Given the current stock price and the available forward contracts, can you identify any arbitrage opportunities? If yes, provide an example and calculate the arbitrage profit. Suppose that the current stock price is 105 per share. The current two-year risk-free interest rate is 4.5%. There are three two-year forward contracts available, with the following two- year forward prices: Contract A Price per share 105 B 114.89 C 108.5 Given the current stock price and the available forward contracts, can you identify any arbitrage opportunities? If yes, provide an example and calculate the arbitrage profit.

Answer rating: 100% (QA)

To identify if there are any arbitrage opportunities we need to calculate what the forward price should be based on the current spot price and the ris... View the full answer