The maturity future price after 1 year if T-bill rate is 3% and expected dividend yield is 2%. Introduction: Future price: A price estimated for a financial transaction that is supposed to be occurring in the future is called future price. Sometimes we have to estimate the future price of a commodity that will occur on a future date. So, on that future day, the price estimated now will become the settlement price of future contracts.

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Answer 1

Question

Chapter 22, Problem 10PS

a.

Summary Introduction

To compute: The maturity future price after 1 year if T-bill rate is 3% and expected dividend yield is 2%.

Introduction:

Future price: A price estimated for a financial transaction that is supposed to be occurring in the future is called future price. Sometimes we have to estimate the future price of a commodity that will occur on a future date. So, on that future day, the price estimated now will become the settlement price of future contracts.

b.

Summary Introduction

To compute: The value of maturity price if the T-bill rate is less than the dividend yield less than 1%.

Introduction:

Dividend yield: It is supposed to be the amount of money paid by the company to its shareholders. Normally, dividend yield is calculated for one year of investment and is represented in terms of percentages.

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Suppose the value of the S&P 500 stock index is currently 2,000.a. If the 1-year T-bill rate is 3% and the expected dividend yield on the S&P 500 is 2%, what should the 1-year maturity futures price be?b. What if the T-bill rate is less than the dividend yield, for example, 1%?

Suppose the value of the S&P 500 stock index is currently 2,400. a. If the 1-year T-bill rate is 6% and the expected dividend yield on the S&P 500 is 4%, what should the 1-year maturity futures price be? Futures price b. What if the T-bill rate is less than the dividend yield, for example, 1%? The T-bill rate is less than the dividend yield, then the futures price should be less than the spot price.

Suppose a stock is currently (time t = 0) worth 100. Further, suppose the one year annually compounded interest rate is 2%, and the two year annually compounded rate is 3%. Find the following:a) The forward price for a forward contract on the stock with maturity year T1 = 1. b) The forward price for a forward contract on the stock with maturity year T2 = 2.c) The forward price for a forward contract with maturity T1 = 1 on a ZCB with maturity T2 = 2.d) The forward price for a forward contract with maturity T1 = 1 on a forward contract on the stock with maturity T2 = 2 and delivery price K = 101.

Answer 2

Question

Chapter 22, Problem 10PS

a.

Summary Introduction

To compute: The maturity future price after 1 year if T-bill rate is 3% and expected dividend yield is 2%.

Introduction:

Future price: A price estimated for a financial transaction that is supposed to be occurring in the future is called future price. Sometimes we have to estimate the future price of a commodity that will occur on a future date. So, on that future day, the price estimated now will become the settlement price of future contracts.

b.

Summary Introduction

To compute: The value of maturity price if the T-bill rate is less than the dividend yield less than 1%.

Introduction:

Dividend yield: It is supposed to be the amount of money paid by the company to its shareholders. Normally, dividend yield is calculated for one year of investment and is represented in terms of percentages.

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Answer 3

Question

Chapter 22, Problem 10PS

a.

Summary Introduction

To compute: The maturity future price after 1 year if T-bill rate is 3% and expected dividend yield is 2%.

Introduction:

Future price: A price estimated for a financial transaction that is supposed to be occurring in the future is called future price. Sometimes we have to estimate the future price of a commodity that will occur on a future date. So, on that future day, the price estimated now will become the settlement price of future contracts.

b.

Summary Introduction

To compute: The value of maturity price if the T-bill rate is less than the dividend yield less than 1%.

Introduction:

Dividend yield: It is supposed to be the amount of money paid by the company to its shareholders. Normally, dividend yield is calculated for one year of investment and is represented in terms of percentages.

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Answer 4

Question

Chapter 22, Problem 10PS

a.

Summary Introduction

To compute: The maturity future price after 1 year if T-bill rate is 3% and expected dividend yield is 2%.

Introduction:

Future price: A price estimated for a financial transaction that is supposed to be occurring in the future is called future price. Sometimes we have to estimate the future price of a commodity that will occur on a future date. So, on that future day, the price estimated now will become the settlement price of future contracts.

b.

Summary Introduction

To compute: The value of maturity price if the T-bill rate is less than the dividend yield less than 1%.

Introduction:

Dividend yield: It is supposed to be the amount of money paid by the company to its shareholders. Normally, dividend yield is calculated for one year of investment and is represented in terms of percentages.

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Answer 5

Chapter 22, Problem 10PS

a.

Summary Introduction

To compute: The maturity future price after 1 year if T-bill rate is 3% and expected dividend yield is 2%.

Introduction:

Future price: A price estimated for a financial transaction that is supposed to be occurring in the future is called future price. Sometimes we have to estimate the future price of a commodity that will occur on a future date. So, on that future day, the price estimated now will become the settlement price of future contracts.

b.

Summary Introduction

To compute: The value of maturity price if the T-bill rate is less than the dividend yield less than 1%.

Introduction:

Dividend yield: It is supposed to be the amount of money paid by the company to its shareholders. Normally, dividend yield is calculated for one year of investment and is represented in terms of percentages.

Answer 6

Chapter 22, Problem 10PS

a.

Summary Introduction

To compute: The maturity future price after 1 year if T-bill rate is 3% and expected dividend yield is 2%.

Introduction:

Future price: A price estimated for a financial transaction that is supposed to be occurring in the future is called future price. Sometimes we have to estimate the future price of a commodity that will occur on a future date. So, on that future day, the price estimated now will become the settlement price of future contracts.

Answer 7

Chapter 22, Problem 10PS

a.

Summary Introduction

To compute: The maturity future price after 1 year if T-bill rate is 3% and expected dividend yield is 2%.

Introduction:

Future price: A price estimated for a financial transaction that is supposed to be occurring in the future is called future price. Sometimes we have to estimate the future price of a commodity that will occur on a future date. So, on that future day, the price estimated now will become the settlement price of future contracts.

Answer 8

b.

Summary Introduction

To compute: The value of maturity price if the T-bill rate is less than the dividend yield less than 1%.

Introduction:

Dividend yield: It is supposed to be the amount of money paid by the company to its shareholders. Normally, dividend yield is calculated for one year of investment and is represented in terms of percentages.

Answer 9

b.

Summary Introduction

To compute: The value of maturity price if the T-bill rate is less than the dividend yield less than 1%.

Introduction:

Dividend yield: It is supposed to be the amount of money paid by the company to its shareholders. Normally, dividend yield is calculated for one year of investment and is represented in terms of percentages.

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 22 - Prob. 1PS Ch. 22 - Prob. 2PS Ch. 22 - Prob. 3PS Ch. 22 - Prob. 4PS Ch. 22 - Prob. 5PS Ch. 22 - Prob. 6PS Ch. 22 - Prob. 7PS Ch. 22 - Prob. 8PS Ch. 22 - Prob. 9PS Ch. 22 - Prob. 10PS

Solution Summary: The author explains that if dividend yield exceeds the rate of interest, it results in a low futures price.

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