Finance
A stock is currently priced at $40. The risk‐free rate of interest is 8% p.a. compounded continuously and an 18‐month maturity forward contract is currently traded in the market at $43. You suspect an arbitrage opportunity exists. Which one of the following trans actions do you need to undertake at time t = 0 to arbitrage based on the given information?
a) Long the forward, borrow money and buy the share
b) Short the forward, short‐sell the share and invest at risk‐free rate
c) Long the forward, short‐sell the share and invest at risk‐free rate
d) Short the forward, borrow money and buy the share
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