Suppose you can borrow and lend at the annual interest rate of 6% perannum. The IBM stock is trading at $200. It is not going to pay anydividend in one year. Use this information to answer the following threequestions.20. What is the fair forward price of a forward contract which calls for thedelivery of 1 share of IBM stock at the end of one year?A. $216B. $210C. $214D. $21221. If the actual forward price Fa is $214, your arbitrage strategy is toA. buy one share of IBM, borrow $200, and sell the forwardB. buy one share of IBM, borrow $212, and buy the forwardC. short one share of IBM, lend $200, and buy the forwardD. short one share of IBM, borrow $200, and sell the forward22. At the end of one year, suppose IBM stock price is St, then the cashflow in the spot (stock) market is _, the cash flow in the forward contractisand the arbitrage profit isA. ST, 214- ST, 2B. -St, ST-214, 2C. -ST, 214-ST, 2D. ST, ST-214, 2

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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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Consider a forward contract which allows you to buy/sell a non-dividend paying stock in three months. Assume the current stock price is $99.41 and the three-month risk free interest is 5.4 percent per year. What should be the forward price? Keep your answer to two decimal places.
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.
The current stock price of IBM is $64. A put option on IBM with an exercise price of $67 sells for $7 and expires in 1 month(s). If the risk-free rate is 1.1% per year, what is the price of a call option on IBM with the same exercise price and expiration date (keep two decimal places)?
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 XYZ stock pays no dividends and has a current price of $50. The forward price for delivery in 1 year is $55. Suppose the 1-year eective annual interest rate is 10%. (a) Graph the payo and prot diagrams for a forward contract on XYZ stock with a forward price of $55. (b) Is there any advantage to investing in the stock or the forward contract? Why? (c) Suppose XYZ paid a dividend of $2 per year and everything else stayed the same. Now is there any advantage to investing in the stock or the forward contract? Why?
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
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 1-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $ 22.1 and the risk-free rate of interest is 1.9% per annum with continuous compounding. 2 months later, the price of the stock is $ 27 and the risk-free interest rate is now 1.8%. What is the forward price at this point in time? (Report your answer in dollars and cents.) Answer: 13
The current stock price of IBM is $63 . A put option on IBM with an exercise price of $68 sells for $5 and expires in 4 month(s). If the risk-free rate is 1.4% per year, what is the price of a call option on IBM with the same exercise price and expiration date (keep two decimal places)? Your Answer: Answer
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
5. The price of Gamma Corp. stock will be either $62 or $86 at the end of the year. Call options are available with one year to expiration. T bills currently yield 4 percent. (SHOW YOUR WORK) suppose the current price of the company’s stock is $70. What is the value of the call option if the exercise price is $65 per share? Suppose the exercise price is $75 in part (a). What is the value of the call option now?
You want to short 1,000 shares of Tesla stock which is currently selling for $52. The dealer offers you a short position with an initial margin of 50% with a maintenance margin of 15%. The continuously compounded, annual interest rate is 3.5%, and the lender offers a rebate rate of 0.5% (cont. comp., annual). At what price do you receive a margin call? If the lender deposits your rebates into your margin account, at what price do you receive a margin call?

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