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Is the strategy in the red box considered as synthetic forward ? Stock XYZ has a current price of 100. The forward price for delivery
Is the strategy in the red box considered as synthetic forward ?
Stock XYZ has a current price of 100. The forward price for delivery of this stock in 1 year is 110. Unless otherwise indicated, the stock pays no dividends and the annual effective risk-free interest rate is 10% Investing In a stock t-0 Borrow 100 Buy a stock Payoff +100Clear Loan 100 0 Profit- S, - 100 (1.1) -100(1.1) Own a stock Payoff S1 - 100(1.1 Investing In a Forward t-0 Enter a forward Contract t-1 Execute Forwargd 0 S 100(1.1) Payoff 0 Payoff S-100(1.1 Profit- S - 100(1.1)Step by Step Solution
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