The price of IBM today is at $50, the continuously compounded interest rate is 1% per...

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The price of IBM today is at $50, the continuously compounded interest rate is 1% per annum. Round your final answers to two decimal places (e.g., 100.1557 100.16). (a) What is the futures price on IBM with expiration in 1 year if you know that IBM will pay a $2 dividend in exactly six months from now? What positions in a zero-coupon bond and the stock will create synthetically the futures (you also have to specify what to do with the dividend)? F = 50 x 0.01-2 × 0.01/2= $48.49. The synthetic futures is created by (1) 1 long stock (2) borrowing of $50 and (3) reinvesting the dividend in the T-bill at the sixth month. (b) What is the futures price on IBM with expiration in 1 year if you know that IBM will pay a dividend in exactly six months from now in the amount of 4% of its stock price at that time? What positions in a zero-coupon bond and the stock will create synthetically the futures (you also have to specify what to do with the dividend)? F = 50 x 0.01/1.04 = $48.56. The synthetic futures is created by (1) 1/1.04(-0.9615) long stock (2) borrow- ing of 50/1.04(-48.0769) and (3) reinvesting the dividend at the sixth month in the stock. The price of IBM today is at $50, the continuously compounded interest rate is 1% per annum. Round your final answers to two decimal places (e.g., 100.1557 100.16). (a) What is the futures price on IBM with expiration in 1 year if you know that IBM will pay a $2 dividend in exactly six months from now? What positions in a zero-coupon bond and the stock will create synthetically the futures (you also have to specify what to do with the dividend)? F = 50 x 0.01-2 × 0.01/2= $48.49. The synthetic futures is created by (1) 1 long stock (2) borrowing of $50 and (3) reinvesting the dividend in the T-bill at the sixth month. (b) What is the futures price on IBM with expiration in 1 year if you know that IBM will pay a dividend in exactly six months from now in the amount of 4% of its stock price at that time? What positions in a zero-coupon bond and the stock will create synthetically the futures (you also have to specify what to do with the dividend)? F = 50 x 0.01/1.04 = $48.56. The synthetic futures is created by (1) 1/1.04(-0.9615) long stock (2) borrow- ing of 50/1.04(-48.0769) and (3) reinvesting the dividend at the sixth month in the stock.

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a To calculate the futures price on IBM with expiration in 1 year taking into account the 2 dividend ... View the full answer