Suppose there’s a stock trading for $100 right now.
The required rate of return is 10%
The risk-free rate is 5%
Should its 1-year forward price be 105 or 110?
It should be 105; if it’s 110, cash-and-carry arbitrage time, baby!
Suppose there’s a stock trading for $100 right now.
The required rate of return is 10%
The risk-free rate is 5%
Should its 1-year forward price be 105 or 110?
It should be 105; if it’s 110, cash-and-carry arbitrage time, baby!