1.

Jane is a portfolio manager for ABC Capital, who plans to buy the common stock of XYZ Corp at the end of 360 days. XYZ common stock is now priced at $100 per share. Two dividend payments of $2/share each are expected on XYZ stock, one in 120 days and one in 300 days. The risk free rate is 5% on a continuous compounding basis. Use the above information to answer this and the next four questions. Jane could hedge against a possible price increase in XYZ's stock price in 360 days by: a. Buy a forward contract on ABC stock with 360 days to the delivery date O b. Sell a forward contract on XYZ stock with 360 days to the delivery date c. Buy a forward contract on XYZ stock with 360 days to the delivery date