Question
A financial asset ABC which is the underlying asset for a futures contract has a settlement date 6 months from now. As an investor, you
A financial asset ABC which is the underlying asset for a futures contract has a settlement date 6 months from now. As an investor, you know the following information about the Financial Asset and the futures contract: In the cash market ABC is selling for k80 dollars ABC pays k8 per year in two semi-annual payments of k4 and the next semiannual payment is due exactly 6 months from now. The current 6 months interest at which funds can be borrowed or loaned is 6% per annum. Required: i. What is the equilibrium futures price ii. What action would you take if the futures price is K83 iii. What action would you take if the futures price is K76
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