What is the forward price of a stock

Assignment Help Finance Basics
Reference no: EM132183819

Derivatives and Risk Management Assignment -

Q1. What is the 6 month forward price of a stock, whose current price is $ 30, and is not expected to pay a dividend within 6 months? The riskless interest rate is 12%, continuously compounded. What if the stock is expected to pay a dividend of $2 after 3 months, and after 6 months? (Assume that the stock will be delivered Ex-Dividend against the forward contract, i.e. the receiver of the stock will not be entitled to the dividend paid at the same time as the delivery.)

Q2. If the 3 month interest rate is 9% and the 6 month interest rate is 10% (both with continuous compounding), then what are the prices of the 3 month and 6 month pure discount bonds? What is the forward price which will be agreed, to buy in 3 months time, the pure discount bond to mature in 6 months' time? What is the corresponding forward interest rate, with continuous compounding?

Q3. With the rates as in Question 2, what is the 6 month forward price of a bond with face value $1000, coupon 10% spot price $900, and which pays coupons on a quarterly basis? (Thus, the bond pays $25 every 3 months. Assume that the bond has just paid a dividend.)

Q4. Assume I can borrow at 5.1% and lend at 4.9% in domestic currency, and I can borrow at 7.1% and lend at 6.9% in foreign currency. (All rates with continuous compounding. Also, I can buy F$1 at spot for DS 2.01, and I can sell F$1 for at spot D$1.99. (F$ "Foreign dollar"; DS - "Domestic dollar".) What is the lowest price at which I would be allowed to buy FSs 1 year forward, without having an arbitrage opportunity? What is the highest price at which I would be allowed to sell FSs 1 year forward?

Reference no: EM132183819

Determining the expected sales

Ben's Beer Company's management wants to prepare budgets for its limited IPA, Dragon Ale. The firm sells the product for $80 per half keg and has the following expected sale

Role of financial manager in maximizing shareholder value

Discuss the role of the financial manager in maximizing shareholder value within today's financial markets and what would be the manager's viewpoint vs. an employee or stockho

Compare tax-advantaged yield with the yield on taxable

Jacqui Velasquez, a treasury assistant, is considering the purchase of municipal notes but needs to compare their tax-advantaged yield with the yield on taxable securities.

Calculate the net present value of each alternative

At the end of the useful life of whatever equipment is chosen the product will be discontinued. The company's tax rate is 50 percent and its cost of capital is 10 percent. C

Estimate the present value of tax benefits from depreciation

Your company is considering a new project that will require $912,000 of new equipment at the start of the project. The equipment will have a depreciable life of 10 years and

What is the project''s discounted payback period

Roswell Energy Company is installing new equipment at a cost of $10 million. Expected cash flows from this project over the next five years will be $1,045,000, $2,550,000, $

What is the horizonn value at 2012

Current and projected free cash flows for Radell global operations are shown below. growth is expected to be constant after 2012, and the weighted average cost of capital is

What will the investment be worth at the end of five years

If you place $50 in a savings account with an interest rate of 7% compounded weekly, what will the investment be worth at the end of five years ( round to the nearest dollar

Reviews

Write a Review

 
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd