Intel stock is trading at $100 per share. The risk-free interest rate (annualized, continuously compounded) is 4.00%. The market assumes that Intel will not pay any dividend within the next 3 months.
(a) What must be the forward price to purchase one share of Intel stock in 3 months?
(b) Suppose Intel suddenly announces a dividend of $2 per share in exactly 2 months and assume that the Intel stock price does not change upon the announcement. What is the new 3-month forward price for Intel? • deliverable does not include dividends paid over the life of the contract.
(c) If after the dividend announcement, the 3-month forward price still stays the same, how would you make arbitrage profit from the market mispricing?