Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Please help by answering part 2 & 3. Intro You anticipate the receipt of money in 180 days, which you will use to purchase stocks
Please help by answering part 2 & 3.
Intro You anticipate the receipt of money in 180 days, which you will use to purchase stocks in a particular company. The stock is currently selling for $70 and will pay a $0.5 dividend in 50 days and another $0.6 in 140 days. The risk-free rate is 5% (with continuous compounding) for all maturities. You go long a forward contract on the stock. Attempt 1/10 for 10 pts. Part 1 At what price would you be willing to buy the stock in 180 days through a forward contract? 50.65 Correct Days from now 0 50 140 160 Years from now 0 0.137 0.3838 0.4384 Cash flowivalue 70 0.5 0.6 ST-FO Present value of dividends: I= De i- 20.5-0.05-0.137 -0.05.330 +0.6e = 1.085 Forward price: F, = (S-1) 0.05-0.4354 = (70 1.085) = 70.44 Attempt 3/10 for 8 pts Part 2 Suppose you agree to the contract at the price you found in the previous part. 30 days later, the stock has fallen to $82.27. What is the value of the forward contract? 1+ decimals Submit Attempt 1/10 for 10 pts. Part 3 What is the new forward price? 0+ decimals Submit Intro You anticipate the receipt of money in 180 days, which you will use to purchase stocks in a particular company. The stock is currently selling for $70 and will pay a $0.5 dividend in 50 days and another $0.6 in 140 days. The risk-free rate is 5% (with continuous compounding) for all maturities. You go long a forward contract on the stock. Attempt 1/10 for 10 pts. Part 1 At what price would you be willing to buy the stock in 180 days through a forward contract? 50.65 Correct Days from now 0 50 140 160 Years from now 0 0.137 0.3838 0.4384 Cash flowivalue 70 0.5 0.6 ST-FO Present value of dividends: I= De i- 20.5-0.05-0.137 -0.05.330 +0.6e = 1.085 Forward price: F, = (S-1) 0.05-0.4354 = (70 1.085) = 70.44 Attempt 3/10 for 8 pts Part 2 Suppose you agree to the contract at the price you found in the previous part. 30 days later, the stock has fallen to $82.27. What is the value of the forward contract? 1+ decimals Submit Attempt 1/10 for 10 pts. Part 3 What is the new forward price? 0+ decimals Submit
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started