Continuous compounding for valuation of futures price

Assignment Help Financial Management

Reference no: EM132056741

1. This is about the current quoted futures price for a futures contract for delivery in 14 months of a bond paying, semi-annually, coupon at a rate of 5.2 percent per year on $100 face value, with a maturity of 11.45 years. The last coupon payment was 3 months ago. Assume that the term structure is flat with a rate of interest of 7% per year. Assume semi-annual compounding for valuation of bond and for determination of conversion factor. Assume continuous compounding for valuation of futures price. Use the information provided to find the following:

a) Conversion factor.

b) Cash spot price of bond.

c) Cash futures price.

d) Quoted futures price.

2. Use Black’s approximation to find the current fair values of a 13-month American call option with a strike price of 24 on a dividend paying stock trading at a current market price of 24, interest rate of 6.2 percent per year, continuously compounded and volatility of 0.32 (as a number, not percent). The stock will go ex-dividend every 3 months starting from time zero and the amount of each quarterly dividend is 4 percent of the current stock price. Obtain the following fair values of options needed to find Black’s approximate American call value:

a) European call option with maturity at first ex-dividend date.

b) European call option with maturity at second ex-dividend date.

c) European call option with maturity at third ex-dividend date.

d) European call option with maturity at fourth ex-dividend date.

e) European call option with maturity 13 months.

f) Current fair value of American call using Black’s approximation

Reference no: EM132056741

Questions Cloud

Compute the net cash provided by operating activities : Oriole Company reported net income of $62000 for the year. Compute the Net cash provided by operating activities for the year

American call and put options on futures on index of stocks : American call and put options on futures on an index of stocks with a strike price of 23.2 dollars for both the options.

What would strickler total assets turnover have been : Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Strickler's sales last year were $170,000.

Probability distribution for number of purchases : For a person in this group who has three? cards, what is the probability distribution for number of purchases made in a? week?

Continuous compounding for valuation of futures price : Assume continuous compounding for valuation of futures price. Use the information provided to find the following:

Analyzing interests rates for equivalent municipal bonds : Analyst is analyzing interests rates for equivalent municipal bonds issued by 2 different states. Sample data shown below.

Compute the total amount of overhead cost : The cost driver for indirect labor and supplies is direct labor costs, Compute the total amount of overhead cost allocated to Department

Data provide sufficient evidence to refute : A random sample of 45 capsules was tested and produced a sample mean of 85.3% and a sample standard deviation of 1.1%.

Find the values of equity as call option : Find the values of equity as a call option and default as a put option on assets of a company.

User Account

All Pages