Consider single-stock forward contract on apple stock

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Reference no: EM131317257

Consider a single-stock forward contract on Apple stock. Suppose that the contract expires before Apple’s next cash dividend. Consider the following scenario:

Risk-free interest rate: r = 1.25% per year, continuously compounded.

Current spot price of Apple stock: $111.79 per share.

Contract expiration: T = 2 months.

Forward price on Apple single-stock forward: $115 per share.

Does an arbitrage opportunity exist? If so, what is the net profit per share when the forward contract expires? Use a strategy that has zero net cash flows today.

Reference no: EM131317257

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