What is net profit per share when futures contract expires

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Reference no: EM131317276

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

Risk-free interest rate: r = 3.24% per year, continuously compounded.

Current spot price of Exxon Mobil stock: $107.88 per share.

Contract expiration: T = 3 months.

Futures price on Exxon Mobil single-stock futures: $100 per share.

An arbitrage opportunity exists. What is the net profit per share when the futures contract expires? Use a strategy that has zero net cash flows today.

Reference no: EM131317276

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