a) If the dividend yield is 1.40% annualized, the interestrate is -0.10% annualized, and the index is trading at28, 144 today, what is the expected price of a 6-monthforward? 28, 144e(-0.001 -0.0140)*0.50 = 27,961.66 b) The 6-month forward is currently quoted at 28,000.Using the information above and the grid below, showhow you would arbitrage this index profitably. Be sureto indicate whether each transaction is long or short (buy or sell) and to include (+) and (-) signs on yourcash flows. Use 0 decimals (whole numbers only) inyour answers. Transaction Time 0 cash flows Time tcash flows Totals:

Derivatives are financial instruments whose value is derived from the value of an underlying asset,…

Answered: a) If the dividend yield is 1.40%…

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

See similar textbooks

Similar questions

Suppose the stock price is $ 95 and the continously compounded interest rate is 7 %. a) What is the price of a 6 - month forward price, assuming dividends are zero? $ ? b) If the 6 - month forward price is $ 96.55, what is the annualized forward premium? % ? c) If the 6 - month forward price is $ 96.55, what is the annualized continous dividend yield? % ?
The level of the Syldavian market index is 21,600 at the start of the year and 26,100 at the end. The dividend yield on the index is 4.3%. a. What is the return on the index over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. If the interest rate is 5%, what is the risk premium over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. If the inflation rate is 7%, what is the real return on the index over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
The level of the Syldavian market index is 21,300 at the start of the year and 25,800 at the end. The dividend yield on the index is 4.8%. a. What is the return on the index over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Return % b. If the interest rate is 6%, what is the risk premium over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Risk Premium c. If the inflation rate is 8%, what is the real return on the index over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) % Real Return
The level of the Syldavian market index is 23,000 at the start of the year and 27,500 at the end. The dividend yield on the index is 5.5%. What is the return on the index over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) If the interest rate is 8%, what is the risk premium over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) If the inflation rate is 9%, what is the real return on the index over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Calculate the annual arithmetic mean and geometric mean return on the following security, purchase price = $27; first-year dividend = $4; price after one year = $32; second-year dividend = $4; selling price after two years = $25. (Round Intermediate calculations to 3 decimal places, e.g. 15.251% and the final answers to 2 decimal places, e.g. 15.25%.) Arithmetic average return Geometric mean return State which method is more appropriate for the situation. Arithmetic average Geometric mean % %
Calculate the annual arithmetic mean and geometric mean return on the following security, purchase price: $42; first-year dividend - $4; price after one year - $47; second-year dividend - $4; selling price after two years = $40. (Round intermediate calculations to 3 decimal places, eg. 15.251% and the final answers to 2 decimal places, e.g. 15.25%.) 1) Find arithmetic average return % 2) Find Geometric mean return % 3) State which method is more appropriate for the situation
An analyst produces the following series of annual dividend forecasts for company D: Expected dividend (end of) year t+1 = 10 euros; Expected dividend (end of) year t+2 = 20 euros; Expected dividend (end of) year t+3 = 10 euros. The analyst further expects that company D dividend will grow indefinitely at a rate of 2 percent after year t+3. Company D cost of equity equals 10 percent. Under these assumptions, calculate the analysts estimate of company D equity value at the end of year t.
The level of the Syldavia market index is 21,900 at the start of the year and 26,400 at the end. The dividend yield on the index is 4.7%. What is the return on the index over the year? If the interest rate is 6%, what is the risk premium over the year? If the inflation rate is 8%, what is the real return on the index over the year? Note: For all requirements, do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places.
Question 1 (A) Suppose the LKM stock price is AUD 30, and the continuously compounded interest rate is 5%. (i) What is the 6-month forward price, assuming dividends are zero? (ii) If the 6-month forward price is AUD 30.50, what is the annualized forward premium? (iii) If the 6-month forward price is AUD 30.50, what is the annualized continuous dividend yield (B) Assume an investor has used fifty futures contracts to hedge the price exposure of gold. Each futures contract is on 5000 ounces of gold. At the time the hedge is closed out, the basis is $0.30 per ounce. What is the effect of the basis on the hedger’s financial position? (i) If the trader is hedging for the purchase of gold (ii) If the trader is hedging for the sale of gold (C) Suppose the futures price is 1100 and you wish to acquire a $2.2 million position in the S&P index. (i) How many futures contracts will you buy or sell, if the current value of one futures contract is $275,000? (ii) Suppose that…
The yearly rates of return for a stock are 0 .15, -0.04, .05, -0.07, 0.24, 0.03. In the following your answers should be correct to 3 places after the decimal point. The Compound Rate of Return per annum compounded annually is
At the beginning of the slide, you were asked to derive the annualize rate of return for the U.S. stock market. In 2016 the value was 23.6 trillion and in 2018 it was 30.1 trillion. So what is the annualized RR? Select one: O a. 6.50% b. 27.54% O c. 30.10% O d. 13.77%
a) Suppose that the current one-year spot rate and expected one-year T-bill rates over the following three years (i.e., years 2, and 3 respectively) are as follows: 1R1 = 3.1%, E(201) = 4.20%, E(3r₁) = 6.6%. Using the unbiased expectation theory, calculate the current long-term rates for one- two and three-year-maturity Treasury securities and plot the current yield curve. Please show each step of your calculation. b) What are the sources of funding for commercial banks? Please also classify the sources of funding and briefly describe each category. c) The unbiased expectation theory and liquidity premium theory are two important theories to explain the shape of yield curve. Discuss and compare the two theories.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS