Question
The S&R index level is 900 at t=0. The dividend yield is 3% p.a. continuously compounded and the risk-free rate is 5% continuously compounded. (a)
The S&R index level is 900 at t=0. The dividend yield is 3% p.a. continuously compounded and the risk-free rate is 5% continuously compounded.
(a) What is the theoretical forward price with a maturity of 1 year?
(b) Suppose you observe a forward price with a maturity of 1 year equal to 950. What position do you take in order to earn arbitrage profit?
A. Long stock and short forward
B. Long stock and long forward
C. Short stock and long forward
D. Short stock and short forward
(c) Suppose you observe a forward price with a maturity of 1 year equal to 950. What is your arbitrage profit at t=1?
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a Forward price F 0 S 0 erdT where S 0 current price 900 r riskfree rate 5 d divide...
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Introduction To Derivatives And Risk Management
Authors: Don M. Chance, Robert Brooks
10th Edition
130510496X, 978-1305104969
