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Need full answers thx. c) An investor is wanting to hedge the value of their portfolio, and decides to use forward contracts on the ASX200.
Need full answers thx.
c) An investor is wanting to hedge the value of their portfolio, and decides to use forward contracts on the ASX200. A 14-month forward contract is entered into when the ASX200 is at a level of 6,400. The risk free rate of interest in Australia is 6% p.a. with continuous compounding and the ASX200 has a dividend yield if 3% p.a. with quarterly compounding. Answer the following questions: i. What is the forward price and initial value of the forward contract? (3 marks) ii. Five months later, the ASX 200 is now at a level of 5,800. The interest rate in Australia and the dividend yield on the ASX200 remain the same. What is the new forward price, and the resulting value of the forward contract
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