The current spot price for a stock index is 1000. The continuously compounded interest rate is 5% per annum and the index pays no dividends. A forward contract is available that is mispriced at a forward price of 1020. Correctly priced puts and calls with the stock index as the underlying asset are available. What arbitrage profit can be made in 3 months on one contract?
The current spot price for a stock index is 1000. The continuously compounded interest rate is 5% per annum and the index pays no dividends. A forward contract is available that is mispriced at a forward price of 1020. Correctly priced puts and calls with the stock index as the underlying asset are available. What arbitrage profit can be made in 3 months on one contract?
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
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