Question 8 a) The current price of a barrel of oil is $25. The annual storage cost, paid upfront, is $0.24 per barrel. The continuously compounded interest rate is 5% per annum for all maturities. What is the 9 - month futures price of oil? b) The stock index level is 1200. The 3-month risk- free interest rate is 3% per annum, and the dividend yield for the following 3 months is 1.2% per annum. For the next 6 months, the risk-free interest rate is 3.5% per annum, and the dividend yield for the following 6 months is 1% per annum. What are the futures prices for the index with maturities of 3 months and 6 months, respectively? (Assume all interest rates and dividend yields are continuously compounded.)
Question 8 a) The current price of a barrel of oil is $25. The annual storage cost, paid upfront, is $0.24 per barrel. The continuously compounded interest rate is 5% per annum for all maturities. What is the 9 - month futures price of oil? b) The stock index level is 1200. The 3-month risk- free interest rate is 3% per annum, and the dividend yield for the following 3 months is 1.2% per annum. For the next 6 months, the risk-free interest rate is 3.5% per annum, and the dividend yield for the following 6 months is 1% per annum. What are the futures prices for the index with maturities of 3 months and 6 months, respectively? (Assume all interest rates and dividend yields are continuously compounded.)
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:Question 8
a) The current price of a barrel of oil is $25. The annual
storage cost, paid upfront, is $0.24 per barrel. The
continuously compounded interest rate is 5% per
annum for all maturities. What is the 9 - month futures
price of oil?
b) The stock index level is 1200. The 3-month risk-
free interest rate is 3% per annum, and the dividend
yield for the following 3 months is 1.2% per annum. For
the next 6 months, the risk-free interest rate is 3.5% per
annum, and the dividend yield for the following 6
months is 1% per annum. What are the futures prices for
the index with maturities of 3 months and 6 months,
respectively? (Assume all interest rates and dividend
yields are continuously compounded.)
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