The current price of TSLA is $350. The APR is 7.2508%. a. Compute the yearly CCIR? What is the monthly CCIR?

The current price of TSLA is $350. The APR is 7.2508%. a. Compute the yearly CCIR? What is the monthly CCIR? b. Suppose that someone is willing to enter into a forward contract (either as a long or short side) and trade TSLA at $354 in 3 months from now. Eager to see whether there is a mispricing, Michael is thinking about doing the following strategy: i. Short TSLA today, and invest the proceeds in a bank. Go long in a forward contract at $354. ii. In 3 months, buy through the forward contract TSLA and close the position. c. What is Michael’s up-front cost of doing this? Does this qualify for an arbitrage strategy? d. Compute Michael’s payoff from the strategy. e. What is the price that makes Michael’s payoff from the strategy equal to zero? f. Instead, suppose that someone is willing to enter a forward contract (long or short) and trade TSLA at $360 in 3 months from now. Michael, once again, believes there might be arbitrage opportunities and considers the following strategy: i. Borrow $350 at the current rate and buy TSLA today. Enter a short forward today to sell at $360. ii. Sell through the forward and repay the loan. g. What is Michael’s up-front cost of doing this? Does this qualify for an arbitrage strategy? h. Compute Michael’s payoff from the strategy. i. What is the price that would make Michael’s strategy zero? j. What is the forward price consistent with no arbitrage? k. In general, assume that ????0 is the current price of TSLA, and that someone is willing to trade TSLA T years from now at ????0 = ????0 × ???? ????????. Compute the payoff from the strategy in b) and in f). l. What is the no arbitrage price of a forward contract? Note: This is the case for stock not paying dividends….

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