You can borrow and lend at the risk-free rate

Assignment Help Financial Management

Reference no: EM131599616

You are given that the current price of Apple stock at the New York Stock Exchange is 500 per share. The nine-month forward price is 552 per share. Apple will pay a dividend of 25 in a year. The risk-free rate is 4% per annum continuously compounded. Determine if there is an arbitrage opportunity based on the prices given, and if there is one, find the amount of profit that can be realized by taking advantage of it, valued at the end of the year, per share of Apple. Assume that there are no taxes, no expenses to trading, and you can borrow and lend at the risk-free rate.

Reference no: EM131599616

Questions Cloud

How much should you be prepared to pay for the stock : You believe that Non-stick Gum Factory will pay a dividend of $5 on its common stock next year. how much should you be prepared to pay for the stock?

What must be the discount rate : A stock sells for $50. The next dividend will be $5 per share. what must be the discount rate?

The dividend yield must be : Shares of common stock of the Samson Co. offer an expected total return of 12.2 percent. The dividend yield must be:

Another option for financing is to call in outstanding bonds : Another option for financing is to call in the outstanding bonds you have issued and obtain a loan with more favorable terms than the bonds you would issue.

You can borrow and lend at the risk-free rate : Assume that there are no taxes, no expenses to trading, and you can borrow and lend at the risk-free rate.

Equivalent annual saving- straight-line depreciation : hat is the equivalent annual savings from the purchase if Gluon uses straight-line depreciation?

What is the bond yield to maturity : If the bond has an annual interest rate of 7 percent, but pays interest semiannually, what is the bond's yield to maturity?

What is the project average accounting return : You're trying to determine whether to expand your business by building a new manufacturing plant. what is the project's average accounting return (AAR)?

Exchange rate between two currencies differs in two location : Given that the exchange rate between two currencies differs in two locations,

User Account

All Pages