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4. Sun Board of Trade offers futures contract on Nyakato, Inc. Assume risk free interest rate is 0.25% per month and Nakato s

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Answer #1

a)Predicated Futures Price = Spot Price*(1+interest rate)

= 450*(1+0.25%*3)

=$ 453.375 per share

b)yes, the relationship is violated

Borrow $450 and buy on share today

After 3 months, sell the share at $455

Pay off the loan 450(1.025%*3) = $453.375

Arbitrage Gain = $1.625/share

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