blem 1. A stock is expected to pay no dividend for a long time. An investor has just taken a short position in a two-year forward contract on the stock. (a) The stock price is $80, and the risk-free rate of interest is 4% per annum (continuous compounding) for all maturities. What are the forward price and the initial value of the forward contract? (b) One-year later, the price of the stock is $72 and the risk-free interest rate is still 4% per annum. What are the forward price and the value of the short position in the forward contract?
blem 1. A stock is expected to pay no dividend for a long time. An investor has just taken a short position in a two-year forward contract on the stock. (a) The stock price is $80, and the risk-free rate of interest is 4% per annum (continuous compounding) for all maturities. What are the forward price and the initial value of the forward contract? (b) One-year later, the price of the stock is $72 and the risk-free interest rate is still 4% per annum. What are the forward price and the value of the short position in 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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Problem 1. A stock is expected to pay no dividend for a long time. An investor has just taken a short position in a two-year forward contract on the stock.
(a) The stock price is $80, and the risk-free rate of interest is 4% per annum (continuous compounding) for all maturities. What are the forward price and the initial value of the forward contract?
(b) One-year later, the price of the stock is $72 and the risk-free interest rate is still 4% per annum. What are the forward price and the value of the short position in the forward contract?
(Need both parts)
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