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Dividend and continuously compounded risk-free rate

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Reference no: EM131064311

1. Suppose a company's $50 stock pays an 8% continuous dividend and the continuously compounded risk-free rate is 6%. Calculate the following:

a. The price of a prepaid forward contract that expires 1 year from now

b. The price of a forward contract that expires 1 year from now

(Hint: You will need a scientific calculator.)

2. Suppose the gold spot price is $1700/oz, the 1-year forward price is 1760.54, and the continuously compounded risk-free rate is 4%. Calculate the following:

a. The lease rate

b. The return on a cash-and-carry if gold cannot be loaned

c. The return on a cash-and-carry if gold is loaned and it earns the lease rate

(Hint: You will need a scientific calculator.)

3. Compute Macaulay and modi?ed durations for the following bonds:

a. A 5-year bond paying annual coupons of 3.322% and selling at par

b. An 8-year bond paying semiannual coupons with a coupon rate of 9% and a yield of 8%

c. A 10-year bond paying annual coupons of 5% with a price of $96 and a maturity value of $100

Reference no: EM131064311

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