(a) s) What are the no-arbitrage forward price and the corresponding initial value of the forward contract to you today? (b) Three months later, the price of the stock is $90 and the risk-free rate is still 4% per annum. What is the no-arbitrage forward price? 2 (c) you and your counterparty respectively at that time? Based on the information of (b), what would be the value of the forward contract to

(a) s) What are the no-arbitrage forward price and the corresponding initial value of the forward contract to you today? (b) Three months later, the price of the stock is $90 and the risk-free rate is still 4% per annum. What is the no-arbitrage forward price? 2 (c) you and your counterparty respectively at that time? Based on the information of (b), what would be the value of the forward contract to

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A stock is expected to pay a dividend of $1 per share in 2 months and in 5 months. The stock price is $60, and the risk-free rate of interest is 5% per annum with continuous compounding for all maturities. An investor has just taken a short position in a 6-month 1. What are the forward price and the initial value of the forward contract? [Hint: what's the value of a forward contract at the initiation of the contract? 2.Three months later, the price of the stock is $52 and the risk-free rate of interest is still 8% per annum. What is the forward price of a new forward contract with the same expiration date as above? What is the value of the short position in the old
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
Consider a long forward contract on Amps Inc stock with a remaining maturity of 8 months. Amps Inc has announced that it will pay $2 dividend per share after 3 months. The risk-free rate of interest (with continuous compounding) is 5 percent per year, the current stock price is $40, and the delivery price when the contract is in place is $42. What is the current no-arbitrage forward price of this stock? 35.32 42.67 39.31 42.44 33.89 32.45
Consider a non-dividend paying stock that is currently trading at Rs.540. You entered into a short forward contract some time back at a strike price of Rs.595. The continuously compounded risk-free rate is 8% per annum and currently it has 9 months to maturity. The current forward price should be __________and value of the forward contract is_______. Rounded off to three decimal places.
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
2. A one year long forward contract on a non-dividend-paying stock is entered into when the stock price is $45 and the risk free rate of interest is 10% per annum with continuous compounding a) What are the forward price and initial value of the forward contract? b) Six month later, the price of the stock is $50 and risk-free interest rate is still 10%. What are the forward price and the value of the forward contract?
The price of a stock is currently $200 per share. It'll pay a dividend of $0.85 every 3 months (the next dividend will occur 3 months from now). 3-month and 5-month risk free interest rates are 0.2% and 0.25%, respectively. All rates are annual rates with continuous compounding. What should be the delivery price of a 5-month forward contract so that the contract is of zero cost? Keep 2 digits in your final answer. Do not include $ sign.
Problem 1. A stock is expected to pay no dividend for a long time. An investor has just taken a short position in a two-year forward contract on the stock. (a) The stock price is $80, and the risk-free rate of interest is 4% per annum (continuous compounding) for all maturities. What are the forward price and the initial value of the forward contract? (b) One-year later, the price of the stock is $72 and the risk-free interest rate is still 4% per annum. What are the forward price and the value of the short position in the forward contract? (Need both parts)
Assume only two states will exist one year from today when a call on Delta Transportation, Inc. stock expires. The price of Delta stock will be either $60 or $40 on that date. Today, Delta stock trades for $55. The strike price of the call is $50. The continuously compounded risk - free rate is 9%. a. What is the tracking portfolio (\Delta and b)? b. How much are you willing to pay for the call option?
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 European call that will expire in one year is currently trading for $3. Assume the risk-free rate (based on continuous compounding) is 5%, the underlying stock price is $60 and the strike price is $55. a. Is there an arbitrage opportunity? b. Describe exactly what a trader should do to take advantage of the arbitrage opportunity assuming it exists. c. Determine the present value of the profit that the trader can earn assuming you identify an arbitrage opportunity. Use at least four decimal places for those questions that require a numerical answer.
V3. Consider a European call option on Allana Inc. stock. The option matures in 8 months and its strike price is $50. Current stock price per Allana Inc.’s share is $50. Allana Inc. will pay $2 dividend per share in 2 month and $3 per share in 6 months and the risk free rate is 3% per annum with continuous compounding for all maturities. Assume that the standard deviation of Allana Inc.’s stock return is 30% per year. The Black-Scholes value of this call option is ______. $18.31 $15.17 $6.92 $5.24 $2.96

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