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The S&R index spot price is 1100, the continuously compounded risk-free rate is 5%, and the...

The S&R index spot price is 1100, the continuously compounded risk-free rate is 5%, and the continuous dividend yield on the index is 2%.

(a) Suppose you observe a 6-month forward price of 1120. What arbitrage would you undertake?

(b) Suppose you observe a 6-month forward price of 1110. What arbitrage would you undertake?

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