6. Assume that there is a ideal money market with constant effective rate R = .04....
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6. Assume that there is a ideal money market with constant effective rate R = .04. Consider a stock S with current price per share So = $73. Find the arbitrage-free forward price for delivery of one share of stock in 10 months, assuming that (a) the stock will not pay any dividends during the next 10 months; (b) the stock will pay dividends twice during the next 10 months: a payment of $0.58 per share in 2 months and a payment of $0.63 cents per share in 8 months; 2 the stock will pay dividends twice during the next 10 months: each payment will be exactly .015 times the share price just prior to the dividend payment. 6. Assume that there is a ideal money market with constant effective rate R = .04. Consider a stock S with current price per share So = $73. Find the arbitrage-free forward price for delivery of one share of stock in 10 months, assuming that (a) the stock will not pay any dividends during the next 10 months; (b) the stock will pay dividends twice during the next 10 months: a payment of $0.58 per share in 2 months and a payment of $0.63 cents per share in 8 months; 2 the stock will pay dividends twice during the next 10 months: each payment will be exactly .015 times the share price just prior to the dividend payment.
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Answer rating: 100% (QA)
To find the arbitragefree forward price we need to use the costofcarry formula F S0 erq t where F is ... View the full answer
Related Book For
Introduction To Derivatives And Risk Management
ISBN: 9781305104969
10th Edition
Authors: Don M. Chance, Robert Brooks
Posted Date:
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