Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Question 5: The Value of A Forward Contract (3/10) This question asks you to think about how the value of a forward contract on a
Question 5: The Value of A Forward Contract (3/10) This question asks you to think about how the value of a forward contract on a dividend paying stock changes over time. Suppose that the continuous dividend yield of the stock of JKL is q = 3% per annum. On January 30, 2020, the stock is traded at $100. The continuously-compounded risk-free rate is rc = 6% per annum. (1) You want to enter a long position of forward contract on January 30 with expiration date January 30, 2021. What's the forward price if you want to enter the forward contract without cost? (2) On July 30, 2020, the price of one JKL share moves $150. What is the forward price of a forward contract with delivery date December 30 (this is a different contract)? (3) On July 30, 2020, how much would you like to pay for the forward contract that were initiated on January 30, 2020 in (1)? (4) What is the value of a short position in the forward contract from (1) if JKL stock price is $80 on July 30, 2020? Create a replication portfolio to justify your result. Question 5: The Value of A Forward Contract (3/10) This question asks you to think about how the value of a forward contract on a dividend paying stock changes over time. Suppose that the continuous dividend yield of the stock of JKL is q = 3% per annum. On January 30, 2020, the stock is traded at $100. The continuously-compounded risk-free rate is rc = 6% per annum. (1) You want to enter a long position of forward contract on January 30 with expiration date January 30, 2021. What's the forward price if you want to enter the forward contract without cost? (2) On July 30, 2020, the price of one JKL share moves $150. What is the forward price of a forward contract with delivery date December 30 (this is a different contract)? (3) On July 30, 2020, how much would you like to pay for the forward contract that were initiated on January 30, 2020 in (1)? (4) What is the value of a short position in the forward contract from (1) if JKL stock price is $80 on July 30, 2020? Create a replication portfolio to justify your result
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