19. A one-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $40 and the risk-free rate of interest is 10% per annum. What are the forward price and the initial value of the forward contract? Select one: a. Forward price is 0, initial value of forward contract is $44 b. Forward price is 0, initial value of forward contract is $40 c. Forward price is $44, initial value of forward contract is 0 d. Forward price is $40, initial value of forward contract is 0

19. A one-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $40 and the risk-free rate of interest is 10% per annum. What are the forward price and the initial value of the forward contract? Select one: a. Forward price is 0, initial value of forward contract is $44 b. Forward price is 0, initial value of forward contract is $40 c. Forward price is $44, initial value of forward contract is 0 d. Forward price is $40, initial value of forward contract is 0

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 4P: Put–Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call...

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Put–Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call option with a strike price of $32 and with 1 year until expiration has a current value of $6.56. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option?
Binomial Model The current price of a stock is 20. In 1 year, the price will be either 26 or 16. The annual risk-free rate is 5%. Find the price of a call option on the stock that has a strike price of 21 and that expires in 1 year. (Hint: Use daily compounding.)
suppose that you enter into a six-month forward contract on a non-dividend paying stock when the stock price is $30 and the risk-free interest rate(with continuous compounding) is 12% per annum. what is the forward price? a) $30.89 b) $31.86 c) $34.56 d) $32.15
You enter into a 9-month forward contract on a non-dividend paying stock when the stock price is £35 and the risk-free interest rate is 12% per annum (assume discrete compounding). Which of the below is closest to the no-arbitrage forward price? a. $39 b. $40 c. $41 d. $38
The current price of a stock paying no income is 30. Assume the annually compounded zero rate will be 3% for the next 2 years. (a) Find the current value of a forward contract on the stock if the delivery price is 25 and maturity is in 2 years. (b) If the stock has price 35 at maturity, find the value of the forward from part (a) to the long counterparty at maturity
A forward contract with 8 months to maturity is written on an underlying share. The market price of the share is $34, and it is expected to pay dividends of $1.40 after 2 months and $2 immediately prior to maturity of the forward. The relevant riskless rate of interest is 4%. Calculate the theoretical forward price and initial value of the forward contract and explain the forward pricing relationship.
A short forward contract on ABC stock that was negotiated some time ago will expire in six months and has a delivery price of $50. ABC stock has a market price of $52 and will pay a dividend of $2 in 4 months. The risk-free interest rate with continuous compounding is 5%. What is the value of the short forward contract? a. -$1.27 b. +$1.27 c. -$3.24
5. Suppose that you, on 1st of January 2023, enter a long position in a 10-year forward contract on a non-dividend-paying stock. The stock price is $50 and the risk-free rate of interest is 5% per annum with yearly compounding (as per 1st of January 2023).a) What are the forward price and the initial value of the forward contract? Five years later, 1st of January 2028, the price of the stock is $60 and the risk-free interest rate is still 5%. `b) On 1st of January 2028, what are the forward price and the value of the forward contract that you entered into on 1st of January 2023? Explain.c) Suppose that you on 1st of January 2028 enter a short position in a forward contract on the same underlying stock and with expiration date in 5 years. What is the value of your total position? (I.e. what is the total value of the long position in the forward contract in a) and your short position). What is the payoff of your total position at maturity?d) On 1st of January 2028, what is the value to…
Suppose that you, on 1st of January 2023, enter a long position in a 10-year forward contract on a non-dividend-paying stock. The stock price is $50 and the risk-free rate of interest is 5% per annum with yearly compounding (as per 1st of January 2023). a) What are the forward price and the initial value of the forward contract? Five years later, 1st of January 2028, the price of the stock is $60 and the risk-free interest is still 5%. b) On 1st of January 2028, what are the forward price and the value of the forward contract that you entered into on 1st of January 2023? Explain. c) Suppose that you on 1st of January 2028 enter a short position in a forward contract on the same underlying stock and with expiration date in 5 years. What is the value of your total position? (I.e. what is the total value of the long position in the forward contract in a) and your short position). What is the payoff of your total position at maturity? d) On 1st of January 2028, what is the value…
A non-dividend-paying stock is currently selling for $50, and the risk-free rate of interest is 8% per annum with continuous compounding for all maturities. An investor has just taken a short position in a six-month forward contract on the stock. a. What is the forward price？ (sample answer: $25.45) b. What is the initial value of the forward contract? (sample answer: $25.45) c. Three months later, the price of the stock is $48 and the risk-free rate is still 8% per annum. What is the forward price now? (sample answer: $25.45) What is the value of the short position in the forward contract? (sample answer: $25.45 or -$25.45
A stock has a spot price of $200. The stock pays a $5 dividend in 6 months. The continuous compounding risk-free rate for all maturities is 9%. What is the equilibrium price of a 2-year forward contract?
Consider a 4-month forward contract for which the underlying asset is a stock index with value of 3, 825.97 and a continuous dividend yield of 0.5% Assume the continuous risk-free annual interest rate is 4.5%, a. Determine the no arbitrage forward price. $ Round your answer to the nearest cent b. Calculate the value of a long position if 2 month(s) later the index changes to 3, 825.97 and the risk-free rate is still 4.5% $ Round your answer to the nearest cent