Consider a single-stock futures contract on Exxon-Mobil stock. Consider the following scenario:
Annualized, continuously compounded risk-free interest rate for 3-month period: r = 3.79%.
Annualized, continuously compounded risk-free interest rate for 5-month period: r = 5.31%.
Current spot price of Exxon Mobil stock: $158 per share.
Dividend per share of $0.69 in 3 months.
Contract expiration: T = 5 months.
Futures price on Exxon Mobil single-stock futures: $150 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.
Consider a single-stock futures contract on Exxon-Mobil stock. Consider the following scenario:
Annualized, continuously compounded risk-free interest rate for 3-month period: r = 3.79%.
Annualized, continuously compounded risk-free interest rate for 5-month period: r = 5.31%.
Current spot price of Exxon Mobil stock: $158 per share.
Dividend per share of $0.69 in 3 months.
Contract expiration: T = 5 months.
Futures price on Exxon Mobil single-stock futures: $150 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.
Related questions
Consider a single-stock futures contract on Wal-Mart common stock. Assume that no dividends will be paid until after the expiration of the futures contract. Consider the following scenario:
Continuously compounded, annualized risk-free interest rate: r = 5%.
Current spot price of Wal-Mart stock: $65 per share.
Futures price on Wal-Mart single-stock futures: $65 per share.
Contract expiration: T = 0.25 year.
Does a risk-free arbitrage opportunity exist? If so, what is the basic strategy?
| a.) No arbitrage opportunity exists at the moment. |
| b.) | Yes. Buy Wal-Mart stock, invest at the risk-free rate, and enter a long position in Wal-Mart single-stock futures. |
| c.) | Yes. Take a loan at the risk-free rate, buy Wal-Mart stock, and enter a short position in Wal-Mart single-stock futures. |
| d.) | Yes. Sell Wal-Mart stock short, invest the proceeds at the risk-free rate, and enter a long position in Wal-Mart single-stock futures. |
| e.) | Yes. Take a loan at the risk-free rate, sell Wal-Mart stock short, and enter a short position in Wal-Mart single-stock futures. |
