Tom enters into a six-month long forward contract on a non-dividend-paying stock when the stock price is $50 and the risk-free rate of interest is 5% per annum with continuous compounding.

(a) What are the forward price and the initial value of the forward contract to Tom?

(b) Three months later, the price of the stock becomes $55 and the risk-free interest rate is 6% with continuous compounding. What are the forward price and the value of the forward contract to Tom? 

(c) Assume that the forward price is $52 when the forward is entered (six months before maturity). Is there an arbitrage opportunity? Show in detail how we can earn a profit. How much is this profit per stock? 

(d) How would your answer from (a) change if the stock is expected to pay a dividend of $2 in nine months? 

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KE asset is shown in the following table. a. Calculate the expected value of return, r, for the asset b. Calculate the standard deviation, o,, for the asset's returns. c. Calculate the coefficient of variation, CV, for the asset's returns a. The expected value of return, r, for the asset is % (Round to two decimal places) b. The standard deviation, o,, for the asset's returns is % (Round to two decimal places) c. The coefficient of variation, CV, for the asset's returns is (Round to two decimal places) Data table 40 (Click on the icon here in order to copy the contents of the data table below into a spreadsheet) 6 Y & 4 7 1 1 ( Question 3 of 5 2 3 4 5 U Pr 0.10 0.05 0.45 0.20 0.20 Print 4+ 8 Return, r 40.00% 25.00% 10.00% 5.00% -5.00% Done hp > 144 9 : 44 a This quiz: 100 This question: - X + 3 KE asset is shown in the following table. a. Calculate the expected value of return, r, for the asset b. Calculate the standard deviation, o,, for the asset's returns. c. Calculate the coefficient of variation, CV, for the asset's returns a. The expected value of return, r, for the asset is % (Round to two decimal places) b. The standard deviation, o,, for the asset's returns is % (Round to two decimal places) c. The coefficient of variation, CV, for the asset's returns is (Round to two decimal places) Data table 40 (Click on the icon here in order to copy the contents of the data table below into a spreadsheet) 6 Y & 4 7 1 1 ( Question 3 of 5 2 3 4 5 U Pr 0.10 0.05 0.45 0.20 0.20 Print 4+ 8 Return, r 40.00% 25.00% 10.00% 5.00% -5.00% Done hp > 144 9 : 44 a This quiz: 100 This question: - X + 3

Answer rating: 100% (QA)

a To calculate the forward price we can use the formula Forward Price Spot Price er t Where Spot Price 50 given r Riskfree interest rate 5 per annum 0... View the full answer