Describe the trades that you must execute today

Reference no: EM133223663

Question: CSL Ltd share price is currently $290. The continuously- compounded riskfree rate of interest is 6% pa. CSL does not pay dividends.

You notice that forward contracts written on CSL with delivery in 9 months time are trading at $296. This is not what the forward price should be and therefore presents an arbitrage opportunity!

Required:

Clearly describe the trades that you must execute today to capture the arbitrage profit on offer from this mispricing. You must be very clear as to what the required trades are and the numerical amounts. Also calculate what the arbitrage profit will be 9 months from now.

Reference no: EM133223663

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