Question 1

Considerthree monthfutures (not options)contract with the current market futures price of (F0) = $25, the current market spot price (S0) = $23, and the risk free rate of (r) = 5% per annum. Assume that the asset can be sold short. Is there riskless arbitrage strategy available in 3 months? If yes, describe the strategy and compute the profit.

Group of answer choices

A/Yes, the arbitrage profit is less than $0.5.

B/Yes, the arbitrage profit is higher than $0.5 but less than $1.0.

C/No, there is no arbitrage profit

D/Yes, the arbitrage profit is higher than $1.5.

E/Yes, the arbitrage profit is higher than $1.0 but less than $1.5.

Question 2

What is the no-arbitrage price of a forward contract if the time to expiration issix months, the underlying asset is worth $250, the continuously compounded annualized risk-free rate is 3%, and storage costs are expressed in terms of a continuous annualized yield of 4%?

Group of answer choices

A/Less than $260.

B/Higher than $265 but less than $270.

C/Higher than $270.

D/Higher than $260 but less than $265.

Question 3

Consider followings: Foreign currency = euro. Local risk-free rate (r) = 2% annual. Foreign risk-free rate (rf) = 3% annual. Exchange rate = $/euro. The current market exchange rate (S0) = 1.5.Suppose the current markettwo yearfutures price (F0) = 1.4. Is there any arbitrage profit? If there is any arbitrage profit, compute the profit. Assume that you take a loan in Germany. The loan = euro 1000.

A/Yes, the arbitrage profit is higher than $70.

B/Yes, the arbitrage profit is less than $50.

C/Yes, the arbitrage profit is higher than $50 but less than $60.

D/No, there is no arbitrage profit

E/Yes, the arbitrage profit is higher than $60 but less than $70

Question 4

The spot price of an investment asset that provides no income is $30 and the risk-free rate for all maturities (with continuous compounding) is 10%. What is the three-year forward price?

Group of answer choices

A/Higher than 45 but less than 47.

B/Higher than 42 but less than 45.

C/Less than 39.

D/Higher than 47.

E/Higher than 39 but less than 42.

Question 5

A short forward contract that was negotiated some time ago will expire in three months and has a delivery price of $40. The current forward price for three-month forward contract is $42. The three month risk-free interest rate (with continuous compounding) is 8%. What to the nearest cent is the value of the short forward contract?

Group of answer choices

A/Higher than -$1.5 but less than -$0.5.

B/Higher than -$2.2 but less than -$1.5.

C/less than -$2.2

D/Higher than -$0.5