Question
1.Suppose a companys $50 stock pays an 8% continuous dividend and the continuously compounded risk-free rate is 6%. Calculate the following: a. the price of
1.Suppose a companys $50 stock pays an 8% continuous dividend and the continuously compounded risk-free rate is 6%. Calculate the following:
a. the price of a prepaid forward contract that expires 1 year from now
b. the price of a forward contract that expires 1 year from now
(Hint: You will need a scientific calculator.)
2.Suppose the gold spot price is $1700/oz, the 1-year forward price is 1760.54, and the continuously compounded risk-free rate is 4%. Calculate the following:
a. the lease rate
b. the return on a cash-and-carry if gold cannot be loaned
c. the return on a cash-and-carry if gold is loaned and it earns the lease rate
(Hint: You will need a scientific calculator.)
3.Compute Macaulay and modied durations for the following bonds:
a. a 5-year bond paying annual coupons of 3.322% and selling at par
b. an 8-year bond paying semiannual coupons with a coupon rate of 9% and a yield of 8%
c. a 10-year bond paying annual coupons of 5% with a price of $96 and a maturity value of $100
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