The current spot price of a stock is $100 per share, and the risk-free rate is...

 

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The current spot price of a stock is $100 per share, and the risk-free rate is 5%. The stock pays no dividends and costs nothing to store. 1. Use formula 2.2 from the reading to calculate the theoretical arbitrage-free or fair price of a one-year forward contract. 2. An investor buys the forward contract at the price from question 1; s/he is long the futures contract. In a year, the spot stock price is $90 per share. What is the payoff from financially settling the long future position? In a year, the spot stock price is $95 per What is the payoff from financially settling the long future position? share. In a year, the spot stock price is $100 per share. What is the payoff from financially settling the long future position? In a year, the spot stock price is $105 per share. What is the payoff from financially settling the long future position? In a year, the spot stock price is $110 per share. What is the payoff from financially settling the long future position? $ $ $ $ 3. Draw the hockey stick for this position; remember to label both axes and mark the break- even value. $90 $95 $105 $100 Spot Price in a Year (S₁) $110 The current spot price of a stock is $100 per share, and the risk-free rate is 5%. The stock pays no dividends and costs nothing to store. 1. Use formula 2.2 from the reading to calculate the theoretical arbitrage-free or fair price of a one-year forward contract. 2. An investor buys the forward contract at the price from question 1; s/he is long the futures contract. In a year, the spot stock price is $90 per share. What is the payoff from financially settling the long future position? In a year, the spot stock price is $95 per What is the payoff from financially settling the long future position? share. In a year, the spot stock price is $100 per share. What is the payoff from financially settling the long future position? In a year, the spot stock price is $105 per share. What is the payoff from financially settling the long future position? In a year, the spot stock price is $110 per share. What is the payoff from financially settling the long future position? $ $ $ $ 3. Draw the hockey stick for this position; remember to label both axes and mark the break- even value. $90 $95 $105 $100 Spot Price in a Year (S₁) $110

Answer rating: 100% (QA)

Step 12 Current spot price is 100 per share Risk free rate is 5 rf Dividend nothing Theoretical arbi... View the full answer