Problem

14. A three-month forward contract on a non-dividend-paying asset is trading at 90, while...

14. A three-month forward contract on a non-dividend-paying asset is trading at 90, while the spot price is 84.

(a) Calculate the implied repo rate.

(b) Suppose it is possible for you to borrow at 8% for three months. Does this give rise to any arbitrage opportunities? Why or why not?

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Solutions For Problems in Chapter 4