What are the forward price and the initial value

Assignment Help Finance Basics
Reference no: EM132611777

A stock is expected to pay a dividend of $1 per share in 2 months. The stock price is $50, and the risk-free rate of interest is 5% per annum with continuous compounding for all maturities. An investor has just taken a short position in a 4-month forward contact on the stock.

(a) What are the forward price and the initial value of the forward contract?

(b) Three months later, the price of the stock is $60 and the risk-free rate of interest increases to 7% per annum. What are the forward price and the value of the short position in the forward contract?

Reference no: EM132611777

Questions Cloud

Disadvantages of using venture capital as startup : Discuss the advantages and disadvantages of using venture capital as startup funding for a business.
Calculate the zero rate for one year : Following information about an existing bond is available:
What is the hedge effectiveness : Company BCD wants to sell 5 million units of an asset in one month.
Two disadvantages of a hedging strategy using futures : A corn farmer hedges their corn price exposure with futures contracts. List two advantages and two disadvantages of a hedging strategy using futures contracts.
What are the forward price and the initial value : (a) What are the forward price and the initial value of the forward contract?
Calculate the npv of the project using fte approach : -If the cost of unlevered equity is 13%, calculate the NPV of the project using APV approach.
Determine the balance in the capital dividend account : During 2016, the Company received a capital dividend of $25,000. Determine the balance in the capital dividend account at December 31, 2019
What is the put premium : The risk-free interest rate is 0.053% per month. If the exercise price is $777, what is the put premium?
How much you have to borrow to establish a synthetic call : The risk-free interest rate is 0.03 per month. If the exercise price of a call option is $132.68, how much you have to borrow to establish a synthetic call?

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd