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Outright purchase-fully leveraged purchase

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Reference no: EM131160899

A non-dividend paying stock currently sells for 100. One year from now the stocksells for 110. The risk-free rate, compounded continuously, is 6%. The stock is purchased in the following manner:

  • You pay 100 today
  • You take possession of the security in one year
  • Which of the following describes this arrangement?

A. Outright purchase
B. Fully leveraged purchase
C. Prepaid forward contract
D. Forward contract
E. This arrangement is not possible due to arbitrage opportunities

Reference no: EM131160899

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