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Consider a stock with S_0 = 50 that pays a dividend of $1 at t = 1. Suppose the effective (not continuous) annual interest rate is r = 10% and the 3-year forward price is F(0,3) = 59. Construct an arbitrage strategy in this situation.
Statistics and Probability, Statistics
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A 2-year Treasury security currently earns 1.97 percent. Over the next two years, the real risk-free rate is expected to be 1.00 percent per year and the inflation premium is expected to be 0.60 percent per year. Calcula ...
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