A stock is expected to pay a dividend of $1 per share in two months and in five months. The stock price is $56, and the risk-free rate (with continuous compounding) is 8% for all maturities. An investor has just taken a long position in a seven-month forward contract on the stock. (1) What are the forward price and the initial value of the forward contract? (2) Three months later, the price of the stock is $60 and the risk-free rate is still 8%. What are the forward price and the value of the forward contract?

A stock is expected to pay a dividend of $1 per share in two months and in five months. The stock price is $56, and the risk-free rate (with continuous compounding) is 8% for all maturities. An investor has just taken a long position in a seven-month forward contract on the stock. (1) What are the forward price and the initial value of the forward contract? (2) Three months later, the price of the stock is $60 and the risk-free rate is still 8%. What are the forward price and the value of the forward contract?

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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Assume that the current stock price is $50 per share, that call options can be purchased with an exercise price of $60 per share, that bank loans can be obtained for a 10 percent nominal rate, and that at expiration of the option in three months, the stock will either be valued at $30 or $70. Show that it is possible to replicate the stock payoff by borrowing and buying a call option.
Today is January 3. Your friend David has just bought a futures contract on a stock index, and the contract specifies one year to expiration. The current share price is $80, and the annually compounded interest rate is 10%. The stock will pay quarterly dividends of $2 during the next year, with dividends payments on the following dates: January 25 April 25 July 25 October 25 Assume that this is a non-leap year. c. What is the value of this futures contract on February 17 if the spot price turns out to be $90 on that day? d. Suppose that, instead of paying a quarterly dividend of $2, the stock index has an annual dividend yield of 10%. The continuously compounded interest rate is 10.52%. What is the price of the index futures on January 3? What is its value on February 17 when the index turns out to be $90?
The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $105 per share for months, and you believe it is going to stay in that range for the next 3 months. The price of a 3-month put option with an exercise price of $105 is $12.86. a. If the risk-free interest rate is 5% per year, what must be the price of a 3-month call option on C.A.L.L. stock at an exercise price of $105 if it is at the money? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price of a 3-month call option
A stock price is currently $51. It is assumed that at the end of six months it will be either $30 or $74. The risk-free interest rate is 1.3% per annum with continuous compounding. The stock doesn't pay dividends. One-step binomial tree is used to value options. What is the value of a six-month European call option with a strike price of $51? Round your final result to the nearest cents and input one number only, without units or percentage sign [%], using the dot [.] to separate decimals. Your Answer: Answer
Suppose stock A is priced at $30/share and the company will pay a dividend of $0.30/share after one month. An investor short sells 50 shares of A and after three months covers the short position when the stock prices is $33.30/share. The continuously compounded risk-free rate is 5%. Calculate the 3-month profit.
A stock trades for $46 per share. A call option on that stock has a strike price of $53 and an expiration date six months in the future. The volatility of the stock's returns is 45%, and the risk-free rate is 3%. What is the Black and Scholes value of this option? The Black and Scholes value of this call option is (Round to the nearest cent.)
round to nearest dollar
Suppose that you, on 1st of January 2024, enter a long position in a 10-year forward contract on a non-dividend-paying stock. The stock price is $50, and the risk-free rate of interest is 5% per annum with yearly compounding (as per 1st of January 2024). Five years later, 1st of January 2029, the price of the stock is $60, and the risk-free interest rate is still 5%. ` A). On 1st of January 2029 what is the value to the party holding the short position in the contract entered into on 1st of January 2024? Explain.
The shares of XYZ Inc. are currently selling for $120 per share. The shares are expected to go up by 10 percent or down by 5 percent in each of the following two months (Month 1 and Month 2). XYZ Inc. is also expected to pay a dividend yield of 2 percent at the end of Month 1. The risk-free rate is 0.5 percent per month. a. What is the value of an American call option on XYZ shares, with an exercise price of $125 and two months to expiration? Use the binomial model to obtain the answer. b. Draw a binomial tree diagram for this American call option, showing the share price, call price, and whether the call should be exercised at each state during the next two months. ***Answer b only

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