A stock is expected to pay a dividend of $1 per share in two months and in five months. The stock price is $56, and the risk-free rate (with continuous compounding) is 8% for all maturities. An investor has just taken a long position in a seven-month forward contract on the stock. (1) What are the forward price and the initial value of the forward contract? (2) Three months later, the price of the stock is $60 and the risk-free rate is still 8%. What are the forward price and the value of the forward contract?

A stock is expected to pay a dividend of $1 per share in two months and in five months. The stock price is $56, and the risk-free rate (with continuous compounding) is 8% for all maturities. An investor has just taken a long position in a seven-month forward contract on the stock. (1) What are the forward price and the initial value of the forward contract? (2) Three months later, the price of the stock is $60 and the risk-free rate is still 8%. What are the forward price and the value of the forward contract?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You must show appropriate equations (whenever applicable) and detailed calculations to earn credit. Homework must be typed with one-inch margin on all sides.
A stock is expected to pay a dividend of $1 per share in 2 months. An investor purchased a forward contract on the stock at a forward price of $50 some time ago. The contract now has 3 months to its delivery date. The stock is currently trading at $55 and the risk free rate is 4% on a continuously compounded basis. Consider the following statements. I. The price of a forward contract on the stock with 3 months to the delivery date is $54.55 II. The value of the investor’s forward position is $5.50 Which of the following is correct? (No excel pls) a. Statement I is incorrect, Statement II is correct. b. Both statements are correct. c. Both statements are incorrect. d. Statement I is correct, Statement II is incorrect.
The price of a stock $120 today. It is expected to pay a dividend of $2 per share in two months, $2.5 in five months, and 3$ in eight months. The risk-free rate of interest is 5% per annum with continuous compounding for all maturities. An investor has just taken a long position in a six-month forward contracton the stock.a) What are the forward price and the initial value of the forward contract?b) Three months later, the price of the stock is $100 and the risk-free rate of interest is 10% per annum. What are the forward price and the value of the long position in the forward contract?
A non-dividend-paying stock is currently selling for $50, and the risk-free rate of interest is 8% per annum with continuous compounding for all maturities. An investor has just taken a short position in a six-month forward contract on the stock. a. What is the forward price？ (sample answer: $25.45) b. What is the initial value of the forward contract? (sample answer: $25.45) c. Three months later, the price of the stock is $48 and the risk-free rate is still 8% per annum. What is the forward price now? (sample answer: $25.45) What is the value of the short position in the forward contract? (sample answer: $25.45 or -$25.45
Consider a forward contract which allows you to buy/sell a non-dividend paying stock in three months. Assume the current stock price is $99.41 and the three-month risk free interest is 5.4 percent per year. What should be the forward price? Keep your answer to two decimal places.
A stock is trading at $40. The market consensus expectation is that it will pay a dividend of $1 in one month and $2 in four months' time. Assume interest rates are constant at 5% per annum for all maturities (continuous compounding). You enter into a long forward position to buy 1,000 shares of stock in six months' time. After two months, the stock is trading at $45. What is the value of your total forward contract position?
You own a call option on Intuit stock with a strike price of $34. When you purchased the option, it cost $6. The option will expire in exactly three months' time. a. If the shares are trading at $43 in three months, what will be the payoff of the call? What will be the profit of the call? b. If the shares are trading at $31 in three months, what will be the payoff of the call? What will be the profit of the call? c. Draw a payoff diagram showing the value of the call at expiration as a function of the share price at expiration. d. Redo (c), but instead of showing payoffs, show profits. a. The payoff of the call is $ (Round to the nearest dollar.) and the profit of the call is $
2. A stock is expected to pay a dividend of 50 pence per share in two months and in five months. The stock price is £15, and the risk-free rate of interest is 6% per annum with continuous compounding for all maturities. An investor has just taken a short position in a six-month forward contract on the stock. What is the current price of the forward contract? +
A stock has a spot price of $200. The stock pays a $5 dividend in 6 months. The continuous compounding risk-free rate for all maturities is 9%. What is the equilibrium price of a 2-year forward contract?
Assume that you have shorted a call option on Intuit stock with a strike price of $40. The option will expire in exactly three months' time. a. If the stock is trading at $55 in three months, what will you owe? b. If the stock is trading at $35 in three months, what will you owe? c. Draw a payoff diagram showing the amount you owe at expiration as a function of the stock price at expiration. a. If the stock is trading at $55 in three months, what will you owe? If the stock is trading at $55 in three months, you will owe $ (Round to the nearest dollar.)
suppose that you enter into a six-month forward contract on a non-dividend paying stock when the stock price is $30 and the risk-free interest rate(with continuous compounding) is 12% per annum. what is the forward price? a) $30.89 b) $31.86 c) $34.56 d) $32.15
You shorted a call option on Intuit stock with a strike price of $38. When you sold (wrote) the option, you received $3. The option will expire in exactly three months' time. a. If the stock is trading at $49 in three months, what will your payoff be? What will your profit be? b. If the stock is trading at $35 in three months, what will your payoff be? What will your profit be? c. Draw a payoff diagram showing the payoff at expiration as a function of the stock price at expiration. d. Redo c, but instead of showing payoffs, show profits. Question content area bottom Part 1 a. The payoff of the short is $ short is $ enter your response here. enter your response here, and the profit of the. Please step by step answer.

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