Illustrtae what is the value of a forward contract

Assignment Help Macroeconomics

Reference no: EM1332276

A buyer of a forward contract is obligated to pay the delivery price K for a share of the stock at the delivery time T

A buyer of a forward contract is obligated to pay the delivery price K for a share of the stock at the delivery time T.

1.) What is the value of a forward contract in terms of the current stock price, the interest rate, the delivery time, and the delivery price if the stock does not pay dividends? Use the basic assumptions on the market you have made to briefly explain the formula.

2.) Suppose that the interest rate r = 7% per year, the delivery price K = $15, and the delivery time T = 1 year. Suppose that at the end of the sixth month the stock price is $23. What is the value of the forward contract at the end of the sixth month?

3.) Suppose the stock pays dividends at the rate q. What is the value of the forward contract in terms of the current stock price, the interest rate, the dividend rate, the delivery time, and the delivery price? You do not need to justify your answer in this part.

Reference no: EM1332276

Questions Cloud

Regulating corporate misconduct and trial lawyers : Did you come away from the movie convinced that the company had done wrong and that Masry and Erin had performed a beneficial service? If so, why did you reach those conclusions?

Managerial functions vs sound decision making skills : The concept of managerial functions and the concept of decision making conditions

Explain which would you say is the correct-legal stance : Explain which would you say is the correct/legal stance that Reeves could take concerning this sticky situation.

Explain what are the baisc factors of strategic hrm : Strategic Human Resource Management - Explain what are the baisc factors, both economic and non-economic, that strategic HRM can address?

Illustrtae what is the value of a forward contract : Illustrtae what is the value of a forward contract in terms of the current stock price, the interest rate, the delivery time.

Explain should information on the internet be restricted : Explain Should information on the internet be restricted or do you think information on the Internet should be unrestricted

Explain how specifically does this information affect : Explain how specifically does this information affect your desire to sign a two-year contract with Toy Yachts R Us.

Describe the essential factors that a hrm must consider : Identify and describe the essential factors that a human resource manager must consider prior to their company expanding into a new country located in the United Arab Emirates.

Assume you want to hedge million bond portfolio : Assume you want to hedge a $400 million bond portfolio with a duration of 4.3 years using 10- year Treasury note futures with a duration of 6.7 years.

User Account

All Pages