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Basic Question 10 of 10

A security is currently trading at $97. It will pay a coupon of $5 in two months. No other payouts are expected in the next six months. Assume continuous compounding at 12%. If the 6-month forward price is $92, what you should do now to create an arbitrage opportunity?

I. Do nothing. There is no arbitrage opportunity.
II. Sell the short spot at $97.
III. Borrow $97 for six months at 12%, and buy the security at $97.
IV. Invest $97 for six months at 12%.
V. Invest $4.901 for two months at 12%.
VI. Investment $92.099 for six months at 12%.
VII. Buy the forward at $92.
VIII. Sell the forward at $92.
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I was very pleased with your notes and question bank. I especially like the mock exams because it helped to pull everything together.
Martin Rockenfeldt

Martin Rockenfeldt

Learning Outcome Statements

describe the carry forward model without underlying cashflows and with underlying cashflows;

CFA® 2025 Level II Curriculum, Volume 5, Module 31.