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The shares of Ω corporation are currently selling for 100. Corey notices that the price of a 1-year prepaid forward on Ω is 98.40. The continuously compounded risk-free rate is 4%, and Ω pays continuous dividends at the rate of 2%.

(a) What is the correct price for a 1-year prepaid forward on Ω?

(b) Please fully explain how Corey could generate a risk free profit because Corey sees an arbitrage opportunity.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92775925

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