1) A stock is expected to pay a dividend of $2.20 per share in 1 months and in 4
ID: 2652637 • Letter: 1
Question
1) A stock is expected to pay a dividend of $2.20 per share in 1 months and in 4 months. The current stock price is $51, and the risk-free interest rate is 6% per annum with continuous compounding for all maturities. An investor has just taken a long position in a 5-month forward contract on the stock. Calculate the forward price.
2) Suppose an investor entered into a long forward contract and also entered into a long futures contract. Which statement is true?
3) A company enters into a long futures contract to buy 200 ounces of gold for $1,278 per ounce. The initial margin is $4,000 and the maintenance margin is $1,000. What gold futures price per ounce will trigger a margin call? (margin of error: +/- $1)
4) It is April and a trader buys 100 September put options with a strike price of $21. The stock price is $17.2 and the option price is $4.44.
At the expiration, the stock price becomes $18.8. Calculate the option profit to the trader.
Explanation / Answer
1.
e=Epsilon Value
n=No of Period
r=Risk free Rate.
Forward Price Spot Price+ Carrying Cost-PV of Dividend Compounding Continous Compounding e=Epsilon Value , Mathematical constant and the value is 2.72 Forward Price=Spot Price*e^nr-Dividend*e^-nre=Epsilon Value
n=No of Period
r=Risk free Rate.
Present value of Dividend 2.03 Stock Price including carrying cost for 5 Months 52.29 Forward Price =Spot Price+Carrying cost-PV of Dividend 50.26Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.