a) If the dividend yield is 1.40% annualized, the interestrate is -0.10% annualized, and the index is trading at28, 144 today, what is the expected price of a 6-monthforward? 28, 144e(-0.001 -0.0140)*0.50 = 27,961.66 b) The 6-month forward is currently quoted at 28,000.Using the information above and the grid below, showhow you would arbitrage this index profitably. Be sureto indicate whether each transaction is long or short (buy or sell) and to include (+) and (-) signs on yourcash flows. Use 0 decimals (whole numbers only) inyour answers. Transaction Time 0 cash flows Time tcash flows Totals:

Derivatives are financial instruments whose value is derived from the value of an underlying asset,…

Answered: a) If the dividend yield is 1.40%…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Using the Treasury yield information in part c, calculate the following rates using geometric averages (round your answers to three decimal places): The 1-year rate, 1 year from now The 5-year rate, 5 years from now The 10-year rate, 10 years from now The 10-year rate, 20 years from now
Suppose we observe the prices of 7-year zero-coupon (with a face value of $91.36) and year 6-to-7 forward rate as follows: P(0,7) = $90.9991 and f(6,7) = 0.00064117%. Extract the 7-year continuously compounded yields y(0,7):
Suppose that the current one-year rate (one- year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1R1=6%, E(2r1) =7%, E(3r1) =7.5% E(4r1)=7.85% 1 Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities. Show your answers in percentage form to 3 decimal places.
4. Expected dividends as a basis for stock values The following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00 per share, and dividends are expected to grow at a constant rate of 3.50% per year. The intrinsic value of a stock should equal the sum of the present value (PV) of all of the dividends that a stock is supposed to pay in the future, but many people find it difficult to imagine adding up an infinite number of dividends, Calculate the present value (PV) of the dividend paid today (De) and the discounted value of the dividends expected to be paid 10, 20, and 50 years from now (Dio, Dao, Duo). Assume that the stock's required return (r.) is 10.40%. Note: Carry and round the calculations to four decimal places. Time Period Now End of Year 10 End of Year 20 End of Year 50 Dividend's Expected Future Value Dividend's Expected Present Value Using the orange curve (square symbols), plot the present value of each of the expected future…
You note the following yield curve in The Wall Street Journal. According to the unbiased expectations theory, what is the 1-year forward rate for the period beginning one year from today, 2f1? Note: Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34). Maturity One day One year Two years Three years. Forward rate Yield 2.80% 6.30 7.30 9.80
Can you explain step by step how you get $1,104.23 by plugging in the numbers and using the formula below?: Given: Coupon rate (6.55%), maturity (15 years), purchase YTM (6.15%). Adjust coupon and maturity for semi-annual periods: Coupon per period = 6.55% / 2 = 3.275%. Number of periods = 15 years * 2 = 30 periods. Use the bond pricing formula: Price = (Coupon * (1 - (1 + YTM/2)^-Number of periods)) / (YTM/2 + (1 + YTM/2)^-Number of periods) Plug in the values: Price ≈ $1,104.23.
A stock is expected to pay a dividend of $1.99 at the end of the year. The required rate of return is rs = 13.82%, and the expected constant growth rate is g = 8.0%. What is the stock's current price?Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. A. $39.61 B. $29.71 C. $34.14 D. $42.68 E. $35.51
The below call option is European. What is the minimum arbitrage profit at time T=1Y arising from the following prices? So = $19.63 T=1Y K = $18 C = $2.77 r = 6% (cont. comp. annual rate) (required precision 0.01 +/- 0.01)
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Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (ie.. years 2, 3, and 4, respectively) are as follows: 181 = 4%, E(201) = 5%, E(31) = 5.50 %, E(41) = 5.85% Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities. (Round your answers to 2 decimal places.) Years AGN- Current (Long-term) Rates
Assume that the spot price of an underlying asset is Php250 and suppose the 10% is the annual risk-free interest rate. At equilibrium, the 6-month forward price of the underlying asset should be nearest to Php275.00 Php262.50 Php256.25 Php250.00
B 1. Suppose XYZ stock’s price is $40 and the continuously compounded interest rate is 5%. a. What is the 6-month forward price, assuming dividends are zero? b. If the forward price is $40.50, what is the annualized continuous dividend yield?

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