The current six-month interest rate at which funds can be loaned or borrowed is 6% Option. a
Question:
The current six-month interest rate at which funds can be loaned or borrowed is 6% Option.
a Option. What is the theoretical (or equilibrium) futures price?
b Option. What action would you take if the futures price is $83?
c Option. What action would you take if the futures price is $76?
d Option. Suppose that ABC pays interest quarterly instead of semiannually Option. If you know that you can reinvest any funds you receive three months from now at 1% for three months, what would the theoretical futures price for six-month settlement be?
e Option. Suppose that the borrowing rate and lending rate are not equal Option. Instead, suppose that the current six-month borrowing rate is 8% and the six-month lending rate is 6% Option. What are the boundaries for the theoretical futures price?
Expert Answer:
a The theoretical or equilibrium futures price can be calculated using the costofcarry model The costofcarry model states that the futures price shoul... View the full answer
