A Trader Has $1 Million Available for Exploiting an Arbitrage

question 28

Multiple Choice

A trader has $1 million available for exploiting an arbitrage opportunity. Given the following information, determine if such an opportunity exists and if so, the maximum amount of profit that can be made by utilizing the $1 million. Ignore all trading costs and taxes.
S₀ = *87
F₁ = *84 (1-year forward)
R_CDN = 5%
R_S = 3%

• A) -$54,333
• B) -$20,000
• C) $5,667
• D) $16,785
• E) $31,034

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