Forward Contract free essay sample

Suppose that you enter into a six-month forward contract on a non-dividend-paying stock when the stock price is $30 and the risk-free interest rate (with continuous compounding) is 12% per annum. What is the forward price? Problem 5. 4. A stock index currently stands at 350. The risk-free interest rate is 8% per annum (with continuous compounding) and the dividend yield on the index is 4% per annum. We will write a custom essay sample on Forward Contract or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page What should the futures price for a four-month contract be? Problem 5. 9. A one-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $40 and the risk-free rate of interest is 10% per annum with continuous compounding. a) What are the forward price and the initial value of the forward contract? b) Six months later, the price of the stock is $45 and the risk-free interest rate is still 10%. What are the forward price and the value of the forward contract? Problem 5. 12. Suppose that the risk-free interest rate is 10% per annum with continuous compounding and that the dividend yield on a stock index is 4% per annum. The index is standing at 400, and the futures price for a contract deliverable in four months is 405. What arbitrage opportunities does this create? Problem 5. 14. The two-month interest rates in Switzerland and the United States are 2% and 5% per annum, respectively, with continuous compounding. The spot price of the Swiss franc is $0. 8000. The futures price for a contract deliverable in two months is $0. 8100. What arbitrage opportunities does this create? Problem 5. 27. A stock is expected to pay a dividend of $1 per share in two months and in five months. The stock price is $50, and the risk-free rate of interest is 8% per annum with continuous compounding for all maturities. An investor has just taken a short position in a six-month forward contract on the stock. a) What are the forward price and the initial value of the forward contract? b) Three months later, the price of the stock is $48 and the risk-free rate of interest is still 8% per annum. What are the forward price and the value of the short position in the forward contract?