Suppose that the bid price of Google stock is $499 per share and the ask price is $502 per share. Google does not pay any dividends. Short selling the stock is feasible at zero cost. You can borrow at an annual rate of 5.8 and lend at 4.1% (simple compounding). The commission of closing a forward position is $1.5 per share. What is the highest forward price that will not allow arbitrage? Please round to two decimal places. 500.33 532.62 margin of error +/-0.1 The upper limit of the no-arbitrage window depends on transaction costs involved in arbitraging over-priced forward contracts.
Suppose that the bid price of Google stock is $499 per share and the ask price is $502 per share. Google does not pay any dividends. Short selling the stock is feasible at zero cost. You can borrow at an annual rate of 5.8 and lend at 4.1% (simple compounding). The commission of closing a forward position is $1.5 per share. What is the highest forward price that will not allow arbitrage? Please round to two decimal places. 500.33 532.62 margin of error +/-0.1 The upper limit of the no-arbitrage window depends on transaction costs involved in arbitraging over-priced forward contracts.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Suppose that the bid price of Google stock is $499 per share and the ask price is $502 per share. Google does not pay any dividends. Short selling the
stock is feasible at zero cost. You can borrow at an annual rate of 5.8 and lend at 4.1% (simple compounding). The commission of closing a forward position
is $1.5 per share. What is the highest forward price that will not allow arbitrage? Please round to two decimal places.
500.33
532.62 margin of error +/-0.1
The upper limit of the no-arbitrage window depends on transaction costs involved in arbitraging over-priced forward contracts.
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