How you derived forward price with no arbitrage opportunity

Assignment Help Finance Basics

Reference no: EM131964395

Question: Current bond price is $1000 and coupon payments will be made $60 every 6 months. Risk-free zero rates are 9% and 9.5% for 6 months and 1 year, respectively, with continuous compounding.

1) Given this information, what should be forward price for no arbitrage opportunity?

2) If the one-year forward price is $980, does arbitrage opportunity exist? If so, what is the arbitrage strategy to exploit the opportunity and how much is the arbitrage profit?

For full points, please write in details. Details include

show how you derived the forward price with no arbitrage opportunity

and with respect to arbitrage strategy

show how much you would borrow or lend NOW in detail (for how long and at what interest rate), whether you would SHORT / LONG an underlying asset or forward contract now, etc

And how does the cash flows occur in each period (6 months? 1 year?)? Provide a CashFlow timetable with the net cash flow effect as well.

Reference no: EM131964395

Questions Cloud

Why is employee involvement so involvement so important : Why is employee involvement so involvement so important? What is and example of it in action?

Develop a table that compares three types of change : PSY-8403 V2: Organizational Development Assignment - For this task, you will develop a table that compares three types of change

Total quality management : Of parallel structures, total quality management, and high-involvement organizations which is most effective and why? Give an example?

Who determines ethical standards for advertising : Who determines ethical standards for advertising? What are the key persuasive techniques used in consumer advertising?

How you derived forward price with no arbitrage opportunity : Current bond price is $1000 and coupon payments will be made $60 every 6 months. Risk-free zero rates are 9% and 9.5% for 6 months and 1 year.

Eurocommercial use in international trading business : How does Euronote and Eurocommercial use in international trading business?

Discuss the importance of data quality : Discuss the importance of data quality, and give 3 examples of how to ensure quality data. (Examples include no duplication, no missing data

How long will it take for her account balance to reach : Three years later, she withdraws 1450 dollars. If there are no other transactions,how long will it take for her account balance to reach 8000 dollars?

Some long-range retirement planning : You are doing some long-range retirement planning. On the day you retire (27 years from now) you want to be able to withdraw $200,000.

User Account

All Pages