Equation 2.2 in the reading gives the formula for the arbitrage-free or fair futures price as...
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Equation 2.2 in the reading gives the formula for the arbitrage-free or "fair" futures price as Fo= So* (1+r) - CFt The current price of an Exxon Mobil Corporation stock (XOM) share is $150. The company pays an annual dividend of $4 per share, an annual cash flow. The current interest rate is 4% per year. What is the arbitrage-free price of a one-year futures contract? Today you enter into a long position in the future contract. A year from now, the price of Exxon Mobil Corporation is $200. You close your position and convert everything to cash. How much have you made or lost? S Equation 2.2 in the reading gives the formula for the arbitrage-free or "fair" futures price as Fo= So* (1+r) - CFt The current price of an Exxon Mobil Corporation stock (XOM) share is $150. The company pays an annual dividend of $4 per share, an annual cash flow. The current interest rate is 4% per year. What is the arbitrage-free price of a one-year futures contract? Today you enter into a long position in the future contract. A year from now, the price of Exxon Mobil Corporation is $200. You close your position and convert everything to cash. How much have you made or lost? S
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Using the formula Fo So 1r CFt we can calculate the arbitragefree price of a oneyear fu... View the full answer
Related Book For
Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders
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