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2. The current price of a share of stock paying continuous dividend is 100, and the con- tinuously compounded dividend yield on the stock is
2. The current price of a share of stock paying continuous dividend is 100, and the con- tinuously compounded dividend yield on the stock is 8. The continuously compounded risk-free rate is r. Consider the four methods to own the stock in one year: outright purchase, fully leveraged purchase, prepaid forward contract and forward contract. Suppose one share of stock is received during the delivery time for each of the meth- ods. (a) If 8 >r, arrange the amount of payment required (as at the payment date without discounting to the present date) for the four methods in ascending order. (b) If r = 5% and 8 = 2%, calculate respectively the payments (as at the payment date) required for the four methods. 2. The current price of a share of stock paying continuous dividend is 100, and the con- tinuously compounded dividend yield on the stock is 8. The continuously compounded risk-free rate is r. Consider the four methods to own the stock in one year: outright purchase, fully leveraged purchase, prepaid forward contract and forward contract. Suppose one share of stock is received during the delivery time for each of the meth- ods. (a) If 8 >r, arrange the amount of payment required (as at the payment date without discounting to the present date) for the four methods in ascending order. (b) If r = 5% and 8 = 2%, calculate respectively the payments (as at the payment date) required for the four methods
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