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a. A nondividend-paying stock currently sells for 80. One year from now the stock sells for 90. The annual effective risk-free rate of return is
a. A nondividend-paying stock currently sells for 80. One year from now the stock sells for 90. The annual effective risk-free rate of return is 4%. A trader purchases the stock in the following manner: The trader agrees today to pay 83.20 in one year. The trader takes possession of the stock in one year. The trader pays 83.20 in one year. Which of the following best describes this arrangement? A. Outright purchase. B. Fully leverage purchase. C. Prepaid forward contract. D. Forward contract. b. The current price of Stock ABC is 40. The stock pays semi-annual dividends of 1.20 per share, with the next dividend to be paid four months from now. The continuously compounded risk-free interest rate is 4%. Calculate the one-year forward price of Stock ABC. a. A nondividend-paying stock currently sells for 80. One year from now the stock sells for 90. The annual effective risk-free rate of return is 4%. A trader purchases the stock in the following manner: The trader agrees today to pay 83.20 in one year. The trader takes possession of the stock in one year. The trader pays 83.20 in one year. Which of the following best describes this arrangement? A. Outright purchase. B. Fully leverage purchase. C. Prepaid forward contract. D. Forward contract. b. The current price of Stock ABC is 40. The stock pays semi-annual dividends of 1.20 per share, with the next dividend to be paid four months from now. The continuously compounded risk-free interest rate is 4%. Calculate the one-year forward price of Stock ABC
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