An 8-month forward contract on a stock is currently priced at $84. The stock currently sells for $80. Assume that the risk-free rate of interest (with continuous compounding) is 10% per annum. Assume that dividends of $0.90 per share are expected after 4 months and 6 months.
- Is there an arbitrage opportunity here?
- If so, how can you engage in a trading strategy to exploit this opportunity? What is the profit from this trading strategy?