Given the following information for a stock, forward contract and interest rates: . Current bid price per share of the stock: $120 . Current ask price per share of the stock: $121 Annual continuously compounded dividend rate for the stock: 3% Annual continuously compounded interest rate for borrowing: 2% Annual continuously compounded interest rate for lending: 1.5% Fee for each stock transaction: $1.5 • Fee for each forward contract transaction: $1.5 Calculate the lower bound for 2-year forward price per share of the stock, below which a profitable arbitrage can be obtained (keep 2 decimal places in your answer).
Given the following information for a stock, forward contract and interest rates: . Current bid price per share of the stock: $120 . Current ask price per share of the stock: $121 Annual continuously compounded dividend rate for the stock: 3% Annual continuously compounded interest rate for borrowing: 2% Annual continuously compounded interest rate for lending: 1.5% Fee for each stock transaction: $1.5 • Fee for each forward contract transaction: $1.5 Calculate the lower bound for 2-year forward price per share of the stock, below which a profitable arbitrage can be obtained (keep 2 decimal places in your answer).
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:Given the following information for a stock, forward contract and interest rates:
• Current bid price per share of the stock: $120
• Current ask price per share of the stock: $121
• Annual continuously compounded dividend rate for the stock: 3%
• Annual continuously compounded interest rate for borrowing: 2%
• Annual continuously compounded interest rate for lending: 1.5%
• Fee for each stock transaction: $1.5
• Fee for each forward contract transaction: $1.5
Calculate the lower bound for 2-year forward price per share of the stock, below which a profitable
arbitrage can be obtained (keep 2 decimal places in your answer).
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