The hsbc futures contract is mispriced

Assignment Help Financial Management

Reference no: EM131883827

Suppose that you are an arbitrageur looking for opportunities to capitalize on mispriced securities.

You notice that the futures contract written on the HSBC, maturing in six months, may be mispriced. The current stock price of HSBC is HK$80 per share and it is expected that HSBC will pay a dividend of HK$1.20 per share six months later. The risk-free interest rate (continuously compounded) is 2% per annum.

Required

a. Demonstrate why you believe the HSBC futures contract is mispriced.

b. Suppose that the actual HSBC stock futures price is HK$78.50. Critically discuss the steps an arbitrageur can take to perform an arbitrage trading and evaluate the arbitrage profit per share.

Reference no: EM131883827

Questions Cloud

Calculate the cost of one custom odawa yacht : The Sturgeon Bay Yacht Company Case - Calculate the cost of one custom Odawa yacht using activity-based costing

Identify the primary methods used to allocate joint costs : Regarding joint cost allocation, discuss the following: Identify the two primary methods used to allocate joint costs.

What transfer would take place at the settlement date : If in 3 months, Libor decreased to 4%, what transfer would take place at the settlement date?

Eliminate the itemized deduction for charitable giving : Personal Income Tax Reforms Examine the following proposed tax reforms. Evaluate them according to the following three principles for optimal taxation.

The hsbc futures contract is mispriced : Demonstrate why you believe the HSBC futures contract is mispriced.

The average beta of the new stocks added to the portfolio : she wants the fund's required return to be 17%. What should be the average beta of the new stocks added to the portfolio?

What is javier depreciation expense on the building : On November 10 of year 1 Javier purchased a building, including the land it was on, to assemble his new equipment. The total cost of the purchase.

Capm and portfolio return : What will be the required return on your $5.5 million portfolio?

Calculate each stock required rate of return : Calculate stock's required rate of return. On basis of two stocks' expected and required returns, which stock would be more attractive to diversified investor?

User Account

All Pages