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Is there an arbitrage opportunity

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Reference no: EM133072229

Suppose that the risk-free interest rate is 8% per annum with continuous compounding. The dividend yield on a stock is 3.5% per annum. The stock currently is selling at $255.17 and the futures price for a contract deliverable in five months is $270.

a. Is there an arbitrage opportunity? (sample answer: yes; or no)

b. If there is an arbitrage opportunity, then will you long futures or short futures? (sample answer: Long; or Short)

c. What is the arbitrage profit per share if there is an arbitrage opportunity in today's dollar (PV of the profit) ignoring the transaction fee? (sample answer: $1.25)

Reference no: EM133072229

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