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What is the effect on the payoffs

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Reference no: EM133071160

Question - Consider the following two strategies for investing in a company's shares:

a. buy the shares immediately and hold them for 6 months for €100 before  selling the seat the end of the six months.

b. take a long position in 6-month forward contract for €102 and immediately sell the shares at the maturity of the contract.

The six-month rate of interest is 2 per cent. Based on the information, please answer the questions below:

What will your payoff be in six month's time from both strategies if the share price is €110 and €95?

What is the effect on the payoffs if after you have decided, the company subsequently announces and pays a dividend of €5 at the end of month five?

Reference no: EM133071160

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