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What should have been the futures price

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Reference no: EM132907791

A futures contract on a share, which pays dividend at a continuously compounded rate of 4%, is written when the share has a price of $650, and the continuously compounded risk-free interest rate is 6%. The contract is priced at $655 and expires in 6 months.

Problem (a) What should have been the futures price?

Problem (b) Demonstrate how you could execute an arbitrage transaction and calculate arbitrage profit.

Problem (c) Calculate the annualized return on such a transaction.

Reference no: EM132907791

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