Answered step by step
Verified Expert Solution
Link Copied!

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

image text in transcribed

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

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles of managerial finance

Authors: Lawrence J Gitman, Chad J Zutter

12th edition

9780321524133, 132479540, 321524136, 978-0132479547

More Books

Students also viewed these Finance questions

Question

1. State how schools help in socialization?

Answered: 1 week ago

Question

What are the major medium of communication ?

Answered: 1 week ago

Question

Family basic steps to socialization write a short note ?

Answered: 1 week ago