Today, you observe the following: Stock FIN 461 has a current price of $100. Over the...

   

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Today, you observe the following: Stock FIN 461 has a current price of $100. Over the next 3 months, it has a beta of 1.00, a volatility of 20%, and an expected return of 10%. The stock will pay $5 dividends one month from today. Stock FIN 563 has a current price of $100. Over the next 3 months, it has, a beta of 0.80, a volatility of 30%, and an expected return of 8%. The stock will pay $5 dividends one month from today There exist a futures contract on one share of FIN 461 with 3 months to delivery, and a futures contract on one share of FIN 563 with 3 months to delivery. Which futures contract has a higher no-arbitrage price currently? A) B) C) D) Circle or highlight the correct answer. (If you cannot circle or highlight, write the question number and the letter of the correct answer.) The futures contract on FIN 461 has a higher no-arbitrage price because it has a higher expected return. The futures contract on FIN 563 has a higher no-arbitrage price because it has a lower beta. The futures contract on FIN 563 has a higher no-arbitrage price because it has a higher volatility. The two futures contracts have the same no-arbitrage futures prices because the shares have equal current prices and pay equal dividends over the next 3 months. Today, you observe the following: Stock FIN 461 has a current price of $100. Over the next 3 months, it has a beta of 1.00, a volatility of 20%, and an expected return of 10%. The stock will pay $5 dividends one month from today. Stock FIN 563 has a current price of $100. Over the next 3 months, it has, a beta of 0.80, a volatility of 30%, and an expected return of 8%. The stock will pay $5 dividends one month from today There exist a futures contract on one share of FIN 461 with 3 months to delivery, and a futures contract on one share of FIN 563 with 3 months to delivery. Which futures contract has a higher no-arbitrage price currently? A) B) C) D) Circle or highlight the correct answer. (If you cannot circle or highlight, write the question number and the letter of the correct answer.) The futures contract on FIN 461 has a higher no-arbitrage price because it has a higher expected return. The futures contract on FIN 563 has a higher no-arbitrage price because it has a lower beta. The futures contract on FIN 563 has a higher no-arbitrage price because it has a higher volatility. The two futures contracts have the same no-arbitrage futures prices because the shares have equal current prices and pay equal dividends over the next 3 months.

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ANSWER Based on the information provided we can calculate the noarbitrage price ... View the full answer