Consider the futures contract on XYZ Inc. stock. Suppose that the annual dividend yield for the stock is 2.5% and the risk-free rate is 6.3%. Both rates are based on continuous compounding. The current futures price of the XYZ Inc. futures contract maturing in 18 months is $900 per share. Assume that the no arbitrage Futures-Spot parity when asset provides a known yield holds. What is the current spot price of XYZ Inc. per share? Please explain and show calculation. a. $934.39 b. $952.79 c. $850.13 d. $900.00 e. $944.37
Q: Conduct the economic feasibility analysis to find out the overall NPV, ROI and breakeven point of…
A: ROI represents the return provided by investment, it is a comparison of the profit earned on the…
Q: Consider the two different options to receive money: • Receive 150 at time 0, 225 at time n years,…
A: Quantum and timing of cash flows under two different streams of payments have been provided. They…
Q: (1) Consider a 15-year 7% semiannual pay bond, if the price of the bond per $1,000 of par value is…
A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…
Q: ou’re trying to choose between two different investments, both of which will cost $65,000 today.…
A: Future Value: The futue value of an investment is its value at the end of the investment period.…
Q: A local Dunkin' Donuts franchise must buy a new piece of equipment in 6 years that will cost…
A: Given, The cost of equipment is $79,000 Interest rate is 12% Term is 6 years
Q: Globex Corp. is expected to generate a free cash flow (FCF) of $145.00 million this year (FCF1 =…
A: Information Provided: FCF = $145 million Growth rate (First 2 years) = 25% Constant growth rate =…
Q: You just bought a newly issued bond which has a face value of $1,000 and pays its coupon once…
A: To calculate the bond price we will use the below formula Bond price =…
Q: Suppose Jack, president of Heart Limited has hired you to advise on the firm’s cost of capital.…
A: Data given: Total liabilities=$ 8 million Total interest expense for the coming year will be about…
Q: One project with initial cost of 29350 is expedited to generate cash flows of 7200 9300 9400 8300…
A: Payback period is the period with in which initial investment is recovered. It means the time period…
Q: The Wonder Company uses only the IRR method for capital budgeting. Suppose it is considering a…
A: Initial Cost = -$93 Cash Flow in Year 2 = $108
Q: how would SCF indicate to an investor that the company is experiencing a “cash-crunch” 2. Explain 3…
A: Cash and liquidity are very important in the business in short term survival and long term survival…
Q: Use Table 12-1 to solve. suppose a certain manufacturer deposits $7,000 at the beginning of each 3…
A: Quarterly deposit (C) = $7,000 Quarterly interest rate (r) = 0.02 (i.e. 0.08 / 4) Number of deposits…
Q: Consider the same bond in the last question. What would the price of this bond a year later if…
A: Here, Bond Type = Zero-coupon bond
Q: what is enterprise value and enterprise value as a multiple EBITDA
A: Enterprise value-It is the measure of a company's total value. Enterprise value to EBITDA multiple…
Q: 2. Alexander borrows P50,000 from Caden. Caden offers him two options for the interest: a. Ordinary…
A: Given: Borrowed amount =P50,000 Ordinary interest rate=3% Days for ordinary interest = 600 Exact…
Q: Tomás bought a house with a mortgage of $328,300. The mortgage is being finance interest rate of…
A: loans are paid by the monthly payments and these payments carry the payment of loa amount and…
Q: riel uses Payback method for capital budgeting. t = 0 cash flow of -$1050 followed with t=1 $400,…
A: Payback period is the period with in which initial investment is recovered. It means the time period…
Q: OUR PARENTS OBTAIN A 2021 MODEL OF TOYOTA FORTUNER FOR P1,500,000.00. THE AGREED PAYMENT IS 5 YEARS…
A: A person is not able to always afford buying a high priced thing like a car or a house. Such items…
Q: A stock's returns have the following distribution: Demand for the Company's Products Weak Below…
A: Data given: Demand for the company's product Probability of this demand occurring Rate of return…
Q: Question 3 The amount Php5,500 is invested from January 2, 2008 to October 7, 2008 at 8% simple…
A: Solution: An amount invested today will earn some amount of interest in future. As per simple…
Q: 2. Alexander borrows P50,000 from Caden. Caden offers him two options for the interest: a. Ordinary…
A: Simple interest is simple and there is no compounding of it and there is no interest on interest and…
Q: What is the days sales outstanding? Do not round intermediate calculations. Round your answer to the…
A: Information Provided: Terms = 2/10, net 35 Total sales = $1,400,000 % of customers paying on the…
Q: B. Ali believes that with expectations for inflation over the next year, investors require 8% for a…
A: The pure expectation hypothesis: The pure expectations hypothesis states that the return earned on a…
Q: You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of…
A: NPV is defined as the sum of the present values of all future cash inflows less the sum of the…
Q: A portable digital music player is purchased with a downpayment of Php1,000 and the balance (present…
A: I'm assuming that the question is asking to calculate the price of the music player as the question…
Q: Suppose a firm’s last dividend was $1.10 (D0) and that it will grow by 10 cents per year over the…
A: Dividend discount model It is used to value of a share. Under dividend discount model, the present…
Q: After starring in your economics and finance courses during your MBA you were offered a starting…
A: Compensation negotiation has to be undertaken between the two informed parties. We have to find the…
Q: Giovanna gave a note amounting to Php15,000 to Alessandro on October 12, 2011 which matures after 2…
A: Simple interest is very simple straight forward that means there in no compounding of interest and…
Q: What is the ROE and operating Margin?
A: ROE = Net Income/Shareholders equity In the given case, Shareholders equity is 60 % of the vehicle…
Q: You are considering the following 3 investments, each with an upfront cost of $45,000 today. Which…
A: The present value of the future money to be received in the future based on the interest rate and…
Q: 2.A company has issued 10-year bonds, with face value of 1,000,000 in 1,000 units. Interest at aid…
A: Price of bond is the present value of annual interest on the bond and present value of bonds taken…
Q: Suppose you bought a five-year zero-coupon Treasury bond for $800 per $1000 face value. What is the…
A: Zero coupon Bond is the bond issued at discount and no interest is paid during the life of the…
Q: The following data are taken from the balance sheet at the end of the current year. Cash Accounts…
A: Working capital = Current assets - Current liabilities
Q: Combining two or more assets in an investment portfolio will typically lead to diversification…
A: A portfolio's investments are mixed together in a broad variety as part of the risk management…
Q: Question 5 Sarah invested Php150,000 for 4 years in Malayan Bank that yields 3% compounded semi-…
A: We were expecting that we retained the interest when we received it while dealing with simple…
Q: Strange Manufacturing Company is purchasing a production facility at a cost of $12 million. The…
A: Net present value = Present value of cash flows - Initial investment Present value of cash flows =…
Q: XYZ corp. is considering investing in a new machine. The new machine cost will $ 8,000 installed.…
A:
Q: What is the net present value (NPV) of the project?
A: NPV or net present value is an important tool in capital budgeting. It is the sum of present values…
Q: PROBLEM: A company is considering two types of equipment for its manufacturing plant. Pertinent data…
A: We have quantum and timing of cash flows emanating from two options. We have to assess them using…
Q: On 1st of December 2020, Mohamed entered in a Forward rate agreement 2*4 FRA with a fixed rate of…
A: As per the given information: Forward rate agreement Fixed-rate - 6.00% Notional amount - $2,000,000…
Q: Which of the following is true? O The convenience yield is strictly positive. O The convenience…
A: Convenience yield is the implied return when an ivestor holds any consumption asset such as…
Q: uppose someone wants to accumulate $55,000 for a college fund over the next 15 years. Determine…
A: We have; Amount to accumulate as $55000 Time period as 15 years Amount deposited per month is $60…
Q: Define the following terms Cost analyses negotiation Quality negotiation Price negotiation
A: Cost analysis negotiation, sometimes known as 'cost negotiation,' is becoming more popular. The…
Q: Treasury securities that mature in 6 years currently have an interest rate of 7.75 percent.…
A: Data given: Nominal interest rate = 7.75% Maturity period (t)=6 years Expected Inflation= 5 % in…
Q: Shelley borrowed $1021.00 from the Central Bank at 8.9% per annum calculated on the monthly unpaid…
A: GIven, Interest rate per annum = 8.9% Interest rate per month = 8.9%/12 = 0.741667% Balance after…
Q: It is October and Sam has won a price of $9000. She has the following two options: • Option A:…
A: The quantum and timing of cash flows differ under the two options. The winner has decided to choose…
Q: Alex is considering one of two options for reducing her heating bill during the winter: New windows…
A: Two options have been given. Using PW or AW or FW, we have to find the better option. Secondly, we…
Q: nominal interest rates are listed as follows. Identify the components (determinants) and the symbols
A: This is a premium added to the real risk free rate to compensate for a decreased in purchasing power…
Q: (a) For Loan A, the interest rate is 6.15% per year and the loan term is 7 years. Find the total…
A: Information Provided: Loan amount = $7500 Loan A & B rate = 6.15% Loan A Period = 7 years Loan…
Q: If the required reserve ratio is 15%, currency in circulation is $400 Billion, checkable deposists…
A: The money multiplier refers to the changes which can be affected the value of money deposits up to…
Consider the futures contract on XYZ Inc. stock. Suppose that the annual dividend yield for the stock is 2.5% and the risk-free rate is 6.3%. Both rates are based on continuous compounding. The current futures price of the XYZ Inc. futures contract maturing in 18 months is $900 per share. Assume that the no arbitrage Futures-Spot parity when asset provides a known yield holds. What is the current spot price of XYZ Inc. per share? Please explain and show calculation.
a. $934.39
b. $952.79
c. $850.13
d. $900.00
e. $944.37
Step by step
Solved in 2 steps
- Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for 1,135.90, producing a nominal yield to maturity of 8%. However, the bond can be called after 5 years for a price of 1,050. (1) What is the bonds nominal yield to call (YTC)? (2) If you bought this bond, do you think you would be more likely to earn the YTM or the YTC? Why?The one-year futures price on a particular stock - index portfolio is 1,124.91, the stock index currently is 1, 116, the one-year risk-free interest rate is 2.61%, and the year-end dividend that will be paid on a $1,116 investment in the index portfolio is $13.73. By how much is the contract mispriced? future price - parity priceOn a particular day, the September S&P 500 stock index futures was priced at 960.50. The S&P 500 index was at 956.49. The contract expires 73 days later. Assuming continuous compounding, suppose the risk-free rate is 5.96 percent and the dividend yield on the index is 2.75 percent. Is the futures overpriced or underpriced? Assuming annual compounding, suppose the risk-free rate is 5.96 percent and the future value of dividends on the index is $5.27. Is the futures overpriced or underpriced?
- Consider these futures market data for the June delivery S&P 500 contract, exactly one year from today. The S&P 500 index is at 1,950, and the June maturity contract is at F0 = 1,951.a. If the current interest rate is 2.5%, and the average dividend rate of the stocks in the index is 1.9%, what fraction of the proceeds of stock short sales would need to be available to you to earn arbitrage profits?b. Suppose now that you in fact have access to 90% of the proceeds from a short sale. What is the lower bound on the futures price that rules out arbitrage opportunities?c. By how much does the actual futures price fall below the no-arbitrage bound?d. Formulate the appropriate arbitrage strategy, and calculate the profits to that strategy.Suppose the 1-year futures price on a stock-index portfolio is 1,914, the stock index currently is 1,900, the 1-year risk-free interest rate is 3%, and the year-end dividend that will be paid on a $1,900 investment in the market index portfolio is $40.a. By how much is the contract mispriced?b. Formulate a zero-net-investment arbitrage portfolio and show that you can lock in riskless profits equal to the futures mispricing.c. Now assume (as is true for small investors) that if you short sell the stocks in the market index, the proceeds of the short sale are kept with the broker, and you do not receive any interest income on the funds. Is there still an arbitrage opportunity (assuming that you don’t already own the shares in the index)? Explain.d. Given the short-sale rules, what is the no-arbitrage band for the stock-futures price relation-ship? That is, given a stock index of 1,900, how high and how low can the futures price be without giving rise to arbitrage opportunities?The multiplier for a futures contract on a stock market index is $50. The maturity of the contract is 1 year, the current level of the index is 1,800, and the risk-free interest rate is .5% per month. The dividend yield on the index is .2% per month. Suppose that after 1 month, the stock index is at 1,820.a. Find the cash flow from the mark-to-market proceeds on the contract. Assume that the parity condition always holds exactly.b. Find the holding-period return if the initial margin on the contract is $5,000
- Suppose that the current spot price of corn is $720 per bushel. The one year risk-free rate is 6% per annum. The futures price for delivery of one bushel of corn in one year’s time is $792 per bushel. Assume that net costs (storage costs minus convenience yield) are $15 per bushel (over the next one year). Is the futures contract correctly priced? If not, what is the theoretically correct price for the futures contract and how could you take advantage of any mispricing? Please show full steps and explain.The S&P portfolio pays a dividend yield of 1% annually. Its current value is 1,300. The T-billrate is 4%. Suppose the S&P futures price for delivery in 1 year is 1,330. Construct an arbitragestrategy to exploit the mispricing and show that your profits 1 year hence will equal the mispricing in the futures market.Suppose that, on 5 November 2020, you opened a short position in a two-year futures contract on the Tesla stock. The share price at the beginning of the contract was $146, and the initial futures price was equal to a theoretical two-year forward price. Assume the following: initial margin of 40% of the futures value, maintenance margin of 32% of the futures value, 3% flat interest rate, continuous compounding, no withdrawals of the excess margin. Next, suppose that, on 1 November 2022, the Tesla stock is priced at $228 per share, and it goes down by 1% daily over 2nd, 3rd and 4th November. Suppose further that, on 1 November 2022, you have received a margin call from your broker (this was your first margin call during this contract) and had to make an instant adjustment to your margin account. Your position in this contract is closed on 4 November 2022. How can you assess your overall profit or loss? Would your overall profit/loss from 1) change if, on 5 November 2020, you had…
- Suppose that, on 5 November 2020, you opened a short position in a two-year futures contract on the Tesla stock. The share price at the beginning of the contract was $146, and the initial futures price was equal to a theoretical two-year forward price. Assume the following: initial margin of 40% of the futures value, maintenance margin of 32% of the futures value, 3% flat interest rate, continuous compounding, no withdrawals of the excess margin. Next, suppose that, on 1 November 2022, the Tesla stock is priced at $228 per share, and it goes down by 1% daily over 2nd, 3rd and 4th November. Suppose further that, on 1 November 2022, you have received a margin call from your broker (this was your first margin call during this contract) and had to make an instant adjustment to your margin account. Calculate the value of your position in this contract at a close of each day between 1-4 November 2022. Show and explain each step of your derivations.Suppose that, on 5 November 2020, you opened a short position in a two-year futures contract on the Tesla stock. The share price at the beginning of the contract was $146, and the initial futures price was equal to a theoretical two-year forward price. Assume the following: initial margin of 40% of the futures value, maintenance margin of 32% of the futures value, 3% flat interest rate, continuous compounding, no withdrawals of the excess margin. Next, suppose that, on 1 November 2022, the Tesla stock is priced at $228 per share, and it goes down by 1% daily over 2nd, 3rd and 4th November. Suppose further that, on 1 November 2022, you have received a margin call from your broker (this was your first margin call during this contract) and had to make an instant adjustment to your margin account. Show how the balance on your margin account was changing over this period (i.e., 1-4 November 2022).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