This is a problem that has THREE questions. Therefore, please choose THREE answers (one choice for each question) to get full credit for this questions, otherwise you will only get partial points.

Consider a forward contract on a non-dividend-paying stock in 4 months. Assume the current stock price is $60 and the 4-month risk free interest rate is 7% per annum (with continuous compounding). Suppose that the current forward price is $65.

1) What should the (theoretical) forward price that leads to no-arbitrage opportunity?

2) With current forward price, what arbitrage opportunities does this create?

3) How much of arbitrage profit is realized?

		1) F* = $63.21
		1) F* = $61.42
		1) F* = $65.98
		1) F* = $69.77
		2) long forward contract, and buy the stock now
		2) long forward contract, and short sell the stock now
		2) short forward contract, and short sell the stock now
		2) short forward contract, and buy the stock now
		3) arbitrage profit = $1.78
		3) arbitrage profit = $0.88
		3) arbitrage profit = $3.58
		3) arbitrage profit = $4.68