The current stock price is 80. A dividend of 2 will be paid 6 months from now.
Question:
The current stock price is 80. A dividend of 2 will be paid 6 months from now. The continuously compounded risk-free interest rate is 6%.
If you observe a 1-year forward price of 82, describe actions you could take as an arbitrageur, and calculate the resulting arbitrage profit (per stock unit).
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Answer rating: 50% (2 reviews)
The fair 1year forward price is which is hig...View the full answer
Answered By
Joseph Njoroge
I am a professional tutor with more than six years of experience. I have helped thousands of students to achieve their academic goals. My primary objectives as a tutor is to ensure that students do not have problems while tackling their academic problems.
4.90+
10+ Reviews
27+ Question Solved
Related Book For
Question Posted:
Students also viewed these Business questions
-
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
-
List three specific parts of the Case Guide, Objectives and Strategy Section (See below) that you had the most difficulty understanding. Describe your current understanding of these parts. Provide...
-
You are given the following information: (i) The current bid price and ask price of stock X are 50 and 51, respectively. (ii) A dividend of 3 will be paid 6 months from now. (iii) The continuously...
-
What are the advantages and disadvantages of Qantass international cooperative alliances? The Qantas Group maintained its strong position in the Australian domestic market in 2016/17. Through a dual...
-
How does a company account for losses under the two methods of accounting for long-term construction contracts?
-
The following data are for Radial Company: Contributed capital and retained earnings . . . . . . . . . . . . . . . . . . $875,000 Foreign currency translation adjustment . . . . . . . . . . . . . . ....
-
Identify the research scenario, including the general area of focus. Develop a hypothetical research scenario that would necessitate the use of the Action Research Approach and a Posttest With a...
-
Weimar Companys income statement information follows. The average number of shares outstanding was 7,800 for 2011 and 6,900 for 2010. Required Compute the following ratios for Weimar for 2011 and...
-
DataBase managment design. Do the dowsings: 1. Run the sql commands written in ddl.sql file attached 2. Create_a dummy data. You can use "fake data generators" 3. Write followings - Write the query...
-
Investors in a certain stock demand to be compensated for risk. The current stock price is 100. The stock pays dividends at a rate proportional to its price. The dividend yield is 2%. The...
-
You short sold 100 shares of stock X on November 1, 3016 and closed your position on November 1, 3018. You are given: (i) Stock X pays dividends continuously at a rate proportional to its price. The...
-
Show how priority inheritance can cause a deadlock. Consider three tasks (with 1 > 2 > 3 ) and appropriate lock unlock sequences.
-
The head loss due to friction in turbulent flow in a closed section pipe is given by the Darcy equation: v h = 1 = 1 = 29 All the parameters in the above equation, except for the friction factor, f,...
-
A structural member must be able to support repeated tension-compression loads (load amplitude is 66800 N, R=-1) without experiencing a fatigue fracture for at least 100 000 cycles. The structure...
-
a) b) A force of F= 500 N is applied to the end of the cable that is attached to block A as shown in Figure Q2(a). The masses of block A and block B are 200 kg and 400 kg respectively. The...
-
23) If drive wheel X rotates clockwise at a speed of 10 rpm, how does wheel Y turn? A. O anti c/w, faster B. Oc/w, slower C. O c/w, faster D. O anti c/w, slower E. O anti c/w, same 24) If the drive...
-
Given the Volumetric Analysis of a Natural Gas: CH4 = 67.3% Nitrogen = 9.6% 0 = 2.7% CO = 0.8% CH6 = 15.4% CO = 1.8% H = 2.4% Calculate the A/F ratio by mass considering CO = 10.8% CO2. Note: Use...
-
Nature House operate a commercial plant nursery where it propagates plants for garden centers throughout the region. Nature House has $4.9 million in assets. Its yearly fixed costs are $682,000, and...
-
APC16550D UART has a clock running at18.432 MHz and its baud rate is set to 2000.Determine the HEX contents of its DLM and DLL registers. Please can you explain step by step and in detail how you get...
-
Xon, a small oil company, purchased a new petroleum drilling rig for $1,800,000. Xon will depreciate the drilling rig using MACRS depreciation . The drilling rig has been leased to a drilling...
-
The profitable Palmer Golf Cart Corp. is considering investing $300,000 in special tools for some of the plastic golf cart components. Executives of the company believe the present golf cart model...
-
Uncle Elmo is contemplating a $10,000 investment in a methane gas generator. He estimates his gross income would be $2000 the first year and increase by $200 each year over the next 10years. His...
-
The Korteweg de Vries equation describes the evolution of surface elevation of low amplitude waves in time and (1-d) space. It reads: + gh hgh 3 9 + + Y 6 2 2h = 0 where g is the gravitational...
-
Max uses a Ford F-350 Truck (it is a dually with a lift kit and has a 6.7L Power Stroke Turbo Diesel engine; Gross Vehicle Weight = 9,900 pounds) 100% for business. He acquired and placed the vehicle...
-
Andrew works as a sales and marketing consultant for Hisense Australia. As part of his work, he purchased a Mercedes van on 1 January 2 0 2 2 for $ 6 0 , 0 0 0 . The vehicle has an effective life of...
Study smarter with the SolutionInn App