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The information of the forward price and stock price is provided below: Forward priceStock/Spot Price
F0 $225
S0 $200
Maturity date of Forward Contract (4 years) T 4
Risk-free Rate r 4%
(1) By using the information above and applying the Cost-of-Carry Model, verify if there is an arbitrage opportunity.
(2) In addition, clearly explain and illustrate the arbitrage ("Cash-and-Carry" or "Reverse Cash-and-Carry") strategy and compute the arbitrage profit. The "Cash-and-Carry" strategy should demonstrate how a portfolio of forward, stock, and risk-free lending/borrowing can produce risk-free arbitrage profit.
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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