What is no-arbitrage range for a one-year forward contract

Reference no: EM132180028

Question - Suppose the price of a non-dividend stock is $1,000 and the risk-free rate is 8% continuously compounded. There is a $25 transaction fee when buying/selling stock and $25 transaction fee when going long or short a forward contract. With transactions costs there is no longer a single no-arbitrage price for the forward contract, but instead a range of prices. What is the no-arbitrage range (i.e., minimum and maximum) for a one-year forward contract given the transactions costs? Note, there is no transaction fee for making or taking delivery under the forward contract.

Reference no: EM132180028

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