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What are the correct arbitrage strategy

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Question - Consider a one-year forward contract on a dividend-paying stock. The current stock price is $80 and the risk-free rate of interest is 9% per annum with continuous compounding for all maturities. The stock will pay a dividend of $3 per share in 6 months. If the forward price is $75, is there an arbitrage opportunity? If so, what are the correct arbitrage strategy and the arbitrage profit? For the arbitrage strategy, show the cash flows from each transaction and the resulting net cash flows.

Reference no: EM133118423

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