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Business, 06.12.2019 01:31 karenaustin5

The spot price of an investment asset is $25 and the risk-free rate is 8%, 8.5% and 9.5% for one-year-, two-year- and three-year-maturity, respectively. the asset provides an income of $4 at the end of the first year and at the end of the second year. note: all interest rates are quoted with continuous compounding in this problem1) what is the three-year forward price for no arbitrage opportunity? 2) if the 3-year forward price in the market is quoted as $21, what arbitrage opportunities does this create? 1) theoretical forward price = $35.841) theoretical forward price = $20.841) theoretical forward price = $23.851) theoretical forward price = $29.852) long forward contract, and short the underlying asset in the spot market2) short forward contract, and short the underlying asset in the spot market2) long forward contract, and buy the underlying asset in the spot market2) short forward contract, and buy the underlying asset in the spot marke

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The spot price of an investment asset is $25 and the risk-free rate is 8%, 8.5% and 9.5% for one-yea...
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