Forwards on Stocks with Dividends (2/10) Intel stock is trading at $100 per share. The risk-free...
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Forwards on Stocks with Dividends (2/10) Intel stock is trading at $100 per share. The risk-free interest rate (annualized, continuously compounded) is 5.00%. The market assumes that Intel will not pay any dividend within the next 3 months. (1) What must be the forward price to purchase one share of Intel stock in 3 months? (2) Suppose that Intel suddenly announces a dividend of $1 per share in exactly 2 months, and assume that the Intel stock price does not change upon the announcement. What must be the new 3-month forward price for the Intel stock? (3) If after the dividend announcement, the 3-month forward price still stays the same, how would you make arbitrage profit from the market mis-pricing? Forwards on Stocks with Dividends (2/10) Intel stock is trading at $100 per share. The risk-free interest rate (annualized, continuously compounded) is 5.00%. The market assumes that Intel will not pay any dividend within the next 3 months. (1) What must be the forward price to purchase one share of Intel stock in 3 months? (2) Suppose that Intel suddenly announces a dividend of $1 per share in exactly 2 months, and assume that the Intel stock price does not change upon the announcement. What must be the new 3-month forward price for the Intel stock? (3) If after the dividend announcement, the 3-month forward price still stays the same, how would you make arbitrage profit from the market mis-pricing?
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Question 1 The forward price of the Intel stock in 3 months must be equal to the spot price of the s... View the full answer
Related Book For
Financial reporting, financial statement analysis and valuation a strategic perspective
ISBN: 978-0324789416
7th Edition
Authors: James M Wahlen, Stephen P Baginskl, Mark T Bradshaw
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