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Assume that you want to buy one share of Spotify in T= 2 years. Todays share price of Spotify is $195, the risk-free rate is
Assume that you want to buy one share of Spotify in T= 2 years. Todays share price of Spotify is $195, the risk-free rate is 3% p.a. (annually compounded) and the annualized standard deviation of stock returns is 25% . Use one binomial period in this exercise (N=1).
- Calculate the forward price
- Calculate the change in the forward price as the standard deviation of the underlying increases by 10 percentage points. What is the intuition behind this result?
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