The S&R index spot price is 1100, the risk-free rate is 5%, and the continuous dividend yield
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a. Suppose you observe a 6-month forward price of 1120. What arbitrage would you undertake?
b. Suppose you observe a 6-month forward price of 1110. What arbitrage would you undertake? Discuss. Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Step by Step Answer:
First we need to find the fair value of the forward price We plug the continuously compounded intere...View the full answer
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