[Cash-and-carry with different interest rates] In real life, borrowing rates are higher than lending rates. Suppose...
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[Cash-and-carry with different interest rates] In real life, borrowing rates are higher than lending rates. Suppose that you can borrow at rB= 6% but can only invest at ry = 3%. Both rates are annualized, continuously compounded. Given that So= 30 and the asset pays continuous proportional dividends of 8 = 5%, derive the range of 1/2-year forward prices on this asset that are consistent with no-arbitrage. Use cash-and-carry strategies to justify your answer. [Cash-and-carry with different interest rates] In real life, borrowing rates are higher than lending rates. Suppose that you can borrow at rB= 6% but can only invest at ry = 3%. Both rates are annualized, continuously compounded. Given that So= 30 and the asset pays continuous proportional dividends of 8 = 5%, derive the range of 1/2-year forward prices on this asset that are consistent with no-arbitrage. Use cash-and-carry strategies to justify your answer.
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Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
Posted Date:
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