Question: Question 1 A one year long forward contract on a non-dividend-paying stock is entered into when the stock price is $45 and the risk free

Question 1 A one year long forward contract on a non-dividend-paying

Question 1 A one year long forward contract on a non-dividend-paying stock is entered into when the stock price is $45 and the risk free rate of interest is 10% per annum with continuous compounding a) What are the forward price and initial value of the forward contract? (3 marks) b) Six month later, the price of the stock is $50 and risk-free interest rate is still 10%. What are the forward price and the value of the forward contract? (3 marks) c) Discuss arbitrage opportunity in case when initial counterparty offers you to enter above contract with the forward price $51. How much you will be able to gain? (4 marks)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

2. A one year long forward contract on a non-dividend-paying stock is entered into when the stock price is $45 and the risk free rate of interest is 10% per annum with continuous compounding a) What...

Question 111 pont) Please briefly explain why is not optimal to early exercise an American call option (on a non-dividend- paying stocks) but it can be optimal to early exercise an American put...

Question 2 (1 point) A 2-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $40 and the risk-free rate of interest is 10% per annum with continuous...

A 1- year long forward contract on a non-dividend-paying stock is entered into when the stock price is $40, and the risk-free rate of interest is still 5% per annum with continuous compounding. A)...

Please show work A 2 -year long forward contract on a non-dividend-paying stock is entered into when the stock price is $ 22.1 and the risk-free rate of interest is 1.5 % per annum with continuous...

I have some finance problems need help,please download and look at them. 5.9. A one-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $40 and the...

A one-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $10 and the risk-free rate of interest is 12% per annum with continuous compounding. a. What...

see the attached doc. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Problem Set 2 Modules 3 and 4 1. A one-year long forward contract on a non-dividend-paying...

A 1-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $40, and the risk-free rate of interest is 5% per annum with continuous compounding. Now, six...

1. A 2-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $139 and the risk-free interest rate is 10.1% per annum with continuous compounding. 1 year...

Revise these business letter abiding business letter format and content requirements Independent Practice: (revising a business letter) -- The following business letter does not abide by business...

A yo-yo is made of three disks, as shown : two outer disks of mass M = 40 g, radius R = 3.0 cm, and thickness d = 1.2 cm, sandwiched around an inner disk of mass m = 20 g, radius r = 1.5 cm, and the...

Which of the following statements is true? Multiple Choice Investors can often achieve lower risk by investing in corporate bonds or may achieve higher returns, with higher risk by investing in...

A company is preparing completing their Cash Budget. The following data has been prepared for cash receipts and payments. January February March Cash receipts $1,061,200 $1,182,400 $1,091,700 Cash...