A stock is expected to pay a dividend of $3 per share in two 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. Three months later, the market price of the stock becomes $45. Determine the value of the short position in the forward contract three after the initiation of the contract. Part (2), You observe the following zero curve maturity (years) zero rate (p.a. continuously compounded) 0.5 6% 1 6.4% 1.5 8% Calculate the price of a bond with 1.5-year maturity and pays a coupon of 6% p.a. semi-annually. Assume the face value of the
A stock is expected to pay a dividend of $3 per share in two 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. Three months later, the market price of the stock becomes $45. Determine the value of the short position in the forward contract three after the initiation of the contract. Part (2), You observe the following zero curve maturity (years) zero rate (p.a. continuously compounded) 0.5 6% 1 6.4% 1.5 8% Calculate the price of a bond with 1.5-year maturity and pays a coupon of 6% p.a. semi-annually. Assume the face value of the
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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Transcribed Image Text:A stock is expected to pay a dividend of $3 per share in two 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. Three months later, the market price of the stock becomes $45. Determine the value of the short
position in the forward contract three after the initiation of the contract.
Part (2) ,
You observe the following zero curve
maturity (years) zero rate (p.a. continuously compounded)
0.5
6%
1
6.4%
1.5
8%
Calculate the price of a bond with 1.5-year maturity and pays a coupon of 6% p.a. semi-annually. Assume the face value of the
bond is $100.
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