Chapter 17, Problem 10PS

Consider a stock that will pay a dividend of D dollars in one year, which is when a futures contract matures. Consider the following strategy: Buy the Stock, short a futures contract on the stock, and borrow $S_0$ dollars, where $S_0$ is the current price of the stock. $\left(\text{LO 17}-\text{3}\right)$
a. What are the cash flows now and in one year? (Hint: Remember the dividend the
stock will pay.)
b. Show that the equilibrium futures price mum be $F_o=S_0(1+r)-D$ to avoid arbitrage.
c. Call the dividend yield $d=D/S_0$ , and conclude that $F_0=S_0(1+r-d)$ .