Question 1

(20 Marks)

PART B

(A)Assume LMN stock is currently priced at AUD75 and pays no dividends. The one-year maturity with strike price AUD 85 European call and put are trading at AUD 8 and AUD 10, respectively. What is the one-year forward price on the stock?(03 Marks)

(B)Assume that the annual borrowing rate is 2%, the spot price of West Texas intermediate (WTI) crude oil is USD 55.50 and the futures price of crude oil contracts expiring one year from today is USD 50.50. Calculate the convenience yield of (WTI) crude oil for delivery one year from today.(03 Marks)

(C)Mr. White holds a long position in a Nikkei 225 futures contract that has a remaining maturity of three months. The continuously compounded dividend yield on the Nikkei 225 stock index is 1.1% and the current stock index level is 16,080. If the continuously compounded annual interest rate is 0.2996%. Calculate the no-arbitrage futures price of the Nikkei 225 futures contract.(02 Marks)