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On the 31st December, a company’s stock was trading at $100. Each forward contract on the company’s stock is for 1,000 stocks. The quoted forward price on each contract is $103,000 for 31st October delivery. It is expected the company will pay a dividend of $2 on the 31st March. The table below shows the risk-free rates over the year.
4 months or less 4.00%
More than 4 to 8 months 4.50%
More than 8 to 12 months 5.00%
Demonstrate clearly all the steps that must be taken to make arbitrage profit. (Show the payoffs of each step and the exact amount of arbitrage profit made from each forward contract)
(Show your workings to 4 decimal places)
 
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