Suppose that you can borrow at r1 4 but can only invest at, Financial Management

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Suppose that you can borrow at r1 4 but can only invest at

In real-life borrowing rates are higher than lending rates. Suppose that you can borrow at r1 = 4% but can only invest at r2 = 2%. Both rates are annualized, continuously compounded.

Given that S0 = 70 and the asset pays continuous dividends of d = 2%, derive the range of 2-year forward prices on this asset that are consistent with no-arbitrage.

Use cash-and-carry strategies to justify your answer

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Financial Management: Suppose that you can borrow at r1 4 but can only invest at

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