Question
PLEASE NOTE: I POSTED THIS QUESTION BEFORE BUT THE EXPERT PROVIDED A WRONG ANSWER WHICH IS STILL SHOWING ON CHEGG. PLEASE DO NOT COPY THAT
PLEASE NOTE: I POSTED THIS QUESTION BEFORE BUT THE EXPERT PROVIDED A WRONG ANSWER WHICH IS STILL SHOWING ON CHEGG. PLEASE DO NOT COPY THAT ANSWER AND PASTE IT HERE.
Emma and Robert are discussing an investment opportunity about the stock XYZ.
The stock has a current price of 100 and the forward price for delivery of this stock in 1 year is 110.
The annual effective risk-free interest rate is 5%. This stock currently pays no dividends.
Emma argues that investing in the forward contract would be more advantageous than investing in the stock only if the 5% interest rate is not annual effective but continuously compounded. Do you agree with her? Justify your answer by showing your workings.
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Financial Management For Decision Making
Authors: Harold Jr. Bierman, Seymour Smidt
1st Edition
1587982129, 9781587982125
