Reference no: EM132503927
A. The price of oil is K100 per barrel. Oil prices are expected to grow at 4% per year. The one-year risk-free rate of interest is 2% in simple terms. It costs K1 to store a barrel of oil for one year. If oil has no costs or benefits of carry, what is the theoretical one-year forward price of oil?
B. A non-interest-bearing asset has a spot price of K100. It costs 1% per annum (on a simple rate basis) to store the asset. Simple interest rates are 5% per annum. What is the fair one-year forward price?
C. Consider a forward start option which, 1 year from today, will give its owner a 1-year European call option with a strike price equal to the stock price at that time. You are given:
(i) The European call option is on a stock that pays no dividends.
(ii) The stock's volatility is 30%.
(iii) The forward price for delivery of 1 share of the stock 1 year from today is 100.
(iv) The continuously compounded risk-free interest rate is 8%.
Required: Under the Black-Scholes framework, determine the price today of the forward start option.
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What is troublesome or confusing about christianity
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Determine the price today of the forward start option
: Required: Under the Black-Scholes framework, determine the price today of the forward start option.
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