Time the stock price turns out to be

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Reference no: EM131962472

1. Suppose that the price of a stock is$45 at the beginning of the year, the risk-free is 6%, assumed constant, and $2 dividend is to be paid after half a year. For a long forward position with delivery in one year, find its value after 9 months if at that time the stock price turns out to be a) $49 b) $51.

2. Consider a stock whose price on 1 January 2000 is $120 and which will pay a dividend of $1 on July 2000 and $2 on 1 October 2000. The interest rate is 12%. Is there an arbitrage opportunity if on 1 January 2000 the forward price for delivery of the stock on 1 November 2000 is $131? If so, compute the profit.

Reference no: EM131962472

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