Provide a short justification

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Reference no: EM1358272

Provide a short justification for your answers (you are evaluated on the justification)

The current price of Digital stock is $44 a share. You are offered a forward price for Digital stock to be delivered in one year of $42. The forward price is lower than the spot price because the market anticipates a sharp decline in the price of Digital stock, and the contract offers a way to hedge this risk. There is no arbitrage opportunity.

Reference no: EM1358272

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