The current price of certain share on the market is 15,50EUR. We assume that this share is paying a dividend at the level of 9% yearly (continuous capitalisation). We also assume that there is fee (cost of keeping this share) for investor. It will be paid in three months in the amount of 0,56EUR. The term structure of interest rate is flat: 2% for any term. a) Please calculate the theoretical price price of 6 month future contract for this share. b) If the current market price of a 6 month future contract is equal to the current market price of share, please check if the arbitrage is possible. If yes indica the position that investor should take in arbitrage strategy, if no, explain why?

The current price of certain share on the market is 15,50EUR. We assume that this share is paying a dividend at the level of 9% yearly (continuous capitalisation). We also assume that there is fee (cost of keeping this share) for investor. It will be paid in three months in the amount of 0,56EUR. The term structure of interest rate is flat: 2% for any term. a) Please calculate the theoretical price price of 6 month future contract for this share. b) If the current market price of a 6 month future contract is equal to the current market price of share, please check if the arbitrage is possible. If yes indica the position that investor should take in arbitrage strategy, if no, explain why?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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