Create a synthetic bond with maturity t

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Reference no: EM131997483

Stock XYZ trades at a current level of S0 = 120, the continuously compounded dividend yield is 2.5%, the continuous interest rate is 4%. Consider the three standard products:

• A fair priced forward contract on XYZ with maturity T = 3 years.

• A Bond with maturity T = 3 paying the continuous interest rate of 4%

• The stock XYZ paying the continuously compounded dividend yield of 2.5%

Similar as in the lecture (there we had no dividends) use the forward and the bond to create a synthetic stock and the stock and the forward to create a synthetic bond with maturity T = 3 years. List all cashflows.

Reference no: EM131997483

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