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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.
Q1. Our markets and the global economy tend to react short term to events such as these. I wanted to share an article from USA today that discusses historical correlations between terror attacks and stock market activity. Please feel free to read and..
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