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The current price of Draftkings Stock (Ticker: DKNG) is $48.35/share. Suppose the risk-free rate is currently 2.4% (continuously-compounded) at all maturities. DKNG does not pay
- The current price of Draftkings Stock (Ticker: DKNG) is $48.35/share. Suppose the risk-free rate is currently 2.4% (continuously-compounded) at all maturities. DKNG does not pay a dividend and there is no expectation that it will any time over the coming year. Consider a 7-month forward contract on DKNG (expiring in April).
- What is the forward price that would preclude arbitrage on such a forward contract?
- If the 7-month forward price on DKNG was $48.50, is there an arbitrage opportunity? If so, how would you exploit it?
- Suppose you had a long position in a forward contract on DKNG with F = $48.50/share (expiring in April), and by the time you get to March (one month remaining on the contract), DKNGs price has risen to $49.93. What is the value of your long contract? What would be the value of an analogous short contract?
- Now consider call and put options on DKNG expiring in April with strikes of K=50 (Kput = Kcall = 50). What is the largest lower bound on price of a call option on DKNG with K=50 and T=April? What about the comparable put option?
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Financial and Managerial Accounting Using Excel for Success
Authors: James Reeve, Carl S. Warren, Jonathan Duchac
1st edition
978-1111993979
