What is the value of your long forward position now

Assignment Help Corporate Finance
Reference no: EM13290560

Q1: (Foward Pricing - use continuous compounding for all questions)

A) A stock index currently stands at 350. The risk-free interest rate is 8% per annum (with continuous compounding) and dividend yield on the index is 4% per annum. What should the forward price for a 4-month delivery be?

B) Assume that the risk-free interest rate is 9% per annum and that the dividend yield on a stock index varies throughout the year. In February, May, August, and November, dividends are paid at a rate of 5% per annum. In other months, dividends are paid at a rate of 2% per annum. On July 31(ex-dividend), the value of the index is1,300. What should be the forward price for delivery on December 31(ex-dividend) of the same year?

Show your answers along with the formula and steps you used for each question.

Q2: (Foward Valuation)

C) On June 1, the 4-month interest rates in Switzerland and the United States were, respectively, 2% and 5% per annum with discrete compouding. The spot price of the Swiss franc was $0.8000/CHF. You took a short position of a CHF forward, CHF 100,000, delivery on October 1. One month later on July 1, three-month interest rates in Switzerland and the United States were, respectively, 2.5% and 4.5% per annum with discrete compouding. The spot exchange rate on the Swiss franc is $0.8020/CHF. On July 1, what is the value of your short position you entered on June 1? Assume the forward contract prices are arbitrage free prices.

D) On June 15, you took a long forward contract (delivery on December 15) on a dividend-paying stock when the stock price was $30 and the risk-free interest rate (with discrete compounding) is 12% per annum. The amount of the dividends were known as $0.75 on Aug 15, and Nov 15. It is now September 15 and the current stock price and the risk-free interest rate are, respectively, $31 and 10%. What is the value of your long forward position now? Assume the forward contract prices are arbitrage free prices.

Show your answers along with the formula and steps you used for each question.

Attachment:- Fin Qs 2.xls

Reference no: EM13290560

What information about company will you want on weekly basis

What information about the company will you want on a weekly basis, on a quarterly basis, and on an annual basis? How will you decide whether to sell, hold, or buy some more

Calculate the value of each investment

Calculate the value of each investment based on your required rate of return and what required rates of return would make you indifferent to all three options?

Capacity condition evaluation and needs assessment

Capacity condition evaluation and needs assessment and project proposal discussions and management - your group should share the sections in the planning cycle such that the g

Provide a review of salient best practice points

FNSACC506: Implement and maintain internal control procedures - Compare ASX and KPMG documentation for assessing how well Ethical Trading Group is meeting its corporate gover

What is the impact on your recommendation of the fact

What is the impact on your recommendation of the fact that the operating cash inflows associated with press A are characterized as very risky in contrast to the low-risk ope

Discuss why return on equity always exceeds return on assets

Discuss in one paragraph why it was unnecessary to technically adjust return on assets for net interest expense and return on equity for preferred dividends. Discuss in one

Components of working capital management

What are the components of working capital management; which are under the control of a firms management, and which does management have little if any control over?

Develop strategic recommendations that are designed

Develop strategic recommendations that are designed to realize growth. Report recent financial results including annual revenues, annual after tax earnings, and year

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