You must own 100 shares of ClassBook three months from today. ClassBook will not pay any...

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You must own 100 shares of ClassBook three months from today. ClassBook will not pay any dividends over the next 3 months. You have the money to buy the shares today if you wish. There is a futures contract calling for delivery of 100 shares of ClassBook three months from today. The current futures price is $140 per share. For simplicity assume that the stock does not pay dividends. The price of ClassBook on the delivery day is unknown today. Now, assume that the interest rate for the next 3 months is 1%, per 3 months (the annualized interest rate is 4%). That is, for every dollar that you deposit today in the bank you will get $1.01 after 3 months. a) Design two strategies that can trade today and will enable you to have shares of ClassBook three months from today. b) Suppose that the current spot price of ClassBook is also $140 per share. What is the best (that is, least costly) strategy TODAY that will enable you to have 100 ClassBook shares three months from today (which is also the futures delivery day)? c) Suppose that the current spot price of ClassBook is $137 per share. What is the best (that is, least costly) strategy TODAY that will enable you to have 100 ClassBook shares three months from today (which is also the futures delivery day)? You must own 100 shares of ClassBook three months from today. ClassBook will not pay any dividends over the next 3 months. You have the money to buy the shares today if you wish. There is a futures contract calling for delivery of 100 shares of ClassBook three months from today. The current futures price is $140 per share. For simplicity assume that the stock does not pay dividends. The price of ClassBook on the delivery day is unknown today. Now, assume that the interest rate for the next 3 months is 1%, per 3 months (the annualized interest rate is 4%). That is, for every dollar that you deposit today in the bank you will get $1.01 after 3 months. a) Design two strategies that can trade today and will enable you to have shares of ClassBook three months from today. b) Suppose that the current spot price of ClassBook is also $140 per share. What is the best (that is, least costly) strategy TODAY that will enable you to have 100 ClassBook shares three months from today (which is also the futures delivery day)? c) Suppose that the current spot price of ClassBook is $137 per share. What is the best (that is, least costly) strategy TODAY that will enable you to have 100 ClassBook shares three months from today (which is also the futures delivery day)?

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Answer a The two strategies are i Purchase the 100 shares of Notebook today and carry them till 3 mo... View the full answer