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Explain how an arbitrage may be created

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Reference no: EM132634979

A security is currently trading at $97. It will pay a coupon of $5 in two months. No other payouts are expected in the next six months.

(a) If the interest rate is 12%, what should be the forward price on the security for delivery in six months?

(b) If the actual forward price is $92, explain how an arbitrage may be created.

Reference no: EM132634979

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