Construct a cashflow table that describes the transactions

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Question: On date t, a bank is quoting a price of $62 per share for a forward contract on Merck stock. The forward contract expires in 6 months. The date t price of Merck stock is $62.15 per share and the interest rate is 1.5% (for continuous compounding). Merck stock pays a $0.45 per share quarterly dividend. The dividend payments occur on dates t+0.05, t+0.30, t+0.55, and so forth, where time is measured in years. Is this an arbitrage opportunity? If yes, calculate the arbitrage profit per share and construct a cashflow table that describes the transactions you would use to exploit the arbitrage.

Reference no: EM131965455

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