The current stock price is $200, and 1-year forward contract on the stock. We assume that the

Fantastic news! We've Found the answer you've been seeking!

Question:

The current stock price is $200, and 1-year forward contract on the stock. We assume that the risk-free rate of interest (continuously compounded) is 10% per annum for all maturities.

Find the cost of forward.

a) The stock pays no dividend till maturity.

b) The stock pays dividends of $0.85 per share are expected after 3 months and 6 months.

Related Book For answer-question

Financial Reporting Financial Statement Analysis and Valuation

ISBN: 978-0324302950

6th edition

Authors: Clyde P. Stickney

Posted Date: Jul 03, 2023 06:40 AM

See More 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...
For a 10-month forward contract on a stock when the stock price is 40 with the risk-free rate of interest continuously compounded is 6% per annum for all maturities and the dividends of 0.60 per...
What does the Black-Sholes-Merton stock option pricing model assume about the probability distribution of the stock price in one year? What does it assume about the continuously compounded rate of...
Pacific Company sells electronic test equipment that it acquires from a foreign source. During the year 2014, the inventory records reflected the following: Inventory is valued at cost using the LIFO...
A TE wave propagating in a dielectric-filled waveguide of unknown permittivity has dimensions a= 5 cm and b=3 cm. If the x-component of its electric field is given by Determine: (a) The mode number,...
Define direct costs and indirect costs.
What is the main difference between core and supplemental ecological indicators? Provide an example of each.Would it be useful to have all production site managers to report to top management on a...
Summaries of the 2015 statements of cash flows for five different companies follow. For each company compute the missing dollar amount, and briefly describe the companys cash management policy...
a. Assume you are a potential investor in Ghana and based on your analysis of the Ghanaian financial market, you are expecting interest rate to rise in the long term. How will this expectation...
> A spring-mass system is a fundamental concept in physics and engineering that describes the dynamic behavior of a mass attached to a spring. This system is commonly used to model and analyze...
Price transparency is becoming a hot topic in today's health care landscape, from both patient and managerial perspectives. Many health care entities are taking price transparency a step further, and...
We can test the significance of a simple regression either by using a t-test to test the slope coefficient or by using an F-test to test the significance of the model. How does our approach differ...
What are the advantages and disadvantages of using a nonlinear trend for forecasting?
What are the advantages and disadvantages of using a linear trend for forecasting?
What are the advantages and disadvantages of using a simple moving-average technique for forecasting?
If you were asked to forecast the size of the entering class at a college, how would you do this? What information would be useful in conducting your forecast?
A rancher's herd of 250 sheep grazes over a 40-acre pasture. He would like to find out how many sheep are grazing on each acre of the pasture at any given time, so he has some images of the pasture...
For Problem estimate the change in y for the given change in x. y = f(x), f'(12) = 30, x increases from 12 to 12.2
Electronic Computer Systems (ECS) designs, manufactures, sells, and services networked computer systems, associated peripheral equipment, and related network, communications, and software products....
Selected data for General Mills for Year 2, Year 3, and Year 4 appear below (amounts in millions): Required a. Compute the rate of return on common shareholders' equity (ROCE) for Year 2, Year 3, and...
A large manufacturer of truck and car tires recently changed its cost-flow assumption method for inventories at the beginning of Year 4. The manufacturer has been in operation for almost forty years,...
Winfred Metal Reclamation Ltd, a small company, buys scrap metal residues from local companies and treats the residues to recover the metal which is then sold to other local companies. The company is...
What financial statements must be prepared?
Mainbrace Ltd is a book publisher and retailer which trades via the Internet. The company was formed using a kit bought from a legal stationer, start up capital was provided by the major shareholder,...

The current stock price is $200, and 1-year forward contract on the stock. We assume that the

Question:

Expert Answer:

a If the stock pays no dividends till maturity the cost of the forward contract can be calculated us... View the full answer

Financial Reporting Financial Statement Analysis and Valuation

Students also viewed these finance questions