FIN

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: a. What is the equilibrium futures price (3 MARKS) b. What action would you take if the futures price is K83 (3 MARKS) C. What action would you take if the futures price is K76