Consider a six-month forward contract on one share of XYZ Plc. These shares are currently traded for £10 per share, and spot interest rates for all maturities are 3%. Within the next six months, XYZ Plc will pay a single dividend of 50p per share in 3 months. You are given the opportunity to take a short position in this forward contract at a forward price of £9.70. Exhibit in detail an arbitrage opportunity available to you.

Consider a six-month forward contract on one share of XYZ Plc. These shares are currently traded for £10 per share, and spot interest rates for all maturities are 3%. Within the next six months, XYZ Plc will pay a single dividend of 50p per share in 3 months. You are given the opportunity to take a short position in this forward contract at a forward price of £9.70. Exhibit in detail an arbitrage opportunity available to you.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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