(A) Suppose the LKM stock price is AUD 30, and the continuously compounded interest rate is 5%. (i) What is the 6-month forward price, assuming dividends are zero? (ii) If the 6-month forward price is AUD 30.50, what is the annualized forward premium? (iii) If the 6-month forward price is AUD 30.50, what is the annualized continuous dividend yield
Finance
Question 1 .
(A) Suppose the LKM stock price is AUD 30, and the continuously compounded interest rate is 5%.
(i) What is the 6-month forward price, assuming dividends are zero?
(ii) If the 6-month forward price is AUD 30.50, what is the annualized forward premium?
(iii) If the 6-month forward price is AUD 30.50, what is the annualized continuous dividend yield
(B) Assume an investor has used fifty futures contracts to hedge the price exposure of gold. Each futures contract is on 5000 ounces of gold. At the time the hedge is closed out, the basis is $0.30 per ounce. What is the effect of the basis on the hedger’s financial position?
(i) If the trader is hedging for the purchase of gold
(ii) If the trader is hedging for the sale of gold
(C) Suppose the futures price is 1100 and you wish to acquire a $2.2 million position in the S&P index.
(i) How many futures contracts will you buy or sell, if the current value of one futures contract is $275,000?
(ii) Suppose that there is a10% margin in weekly settlement. How much will you lose if the S&P futures price drops by 1, to 1099?
(iii) Suppose that over the first week, the futures price drops 72.01 points to 1027.99. On a mark-to-market basis, how much will you lose?
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