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Construct a strategy to earn risk-free profit

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Reference no: EM132785500

Suppose you are interested in the forward contract of a stock which pays dividends continuously at a dividend yield of 5% per year. The stock is currently selling at $30. Moreover, the annual interest rate is 10% compounded annually. If you observe that the forward price with delivery date 1 year from now is $32 per share, is there arbitrage opportunity? If there is, construct a strategy to earn risk-free profit.

Reference no: EM132785500

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