What are the forward price and the value of the contract

Assignment Help Accounting Basics
Reference no: EM133018419

Question - A two-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $73 and the risk-free rate of interest is 5% per annum with continuous compounding.

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

b. Six months later, the price of the stock is $77.5 and the risk-free interest rate is still 5%. What are the forward price and the value of the contract?

c. If the stock pays a dividend of $3.5 twice a year (ie. Pay $3.5 every six months), what is the forward price?

Reference no: EM133018419

Questions Cloud

Calculate the present value of your lottery winnings : Congratulations! You have just won $2 billion in the largest Powerball jackpot payoff ever! Calculate the present value of your lottery winnings
What amount of revenue pertaining to the outstanding gift : What amount of revenue pertaining to the 2250 outstanding gift certificates should be deferred at December 31, 2020
Professional practice reflection : Professional practice reflection. This requires you to by reflect on your experiences in Master of Business Information Systems
Make the journal entries to record income taxes : Automated tattoo machinery was acquired on January 1, 2019, for $200,000. Make the journal entries to record income taxes for 2020
What are the forward price and the value of the contract : Six months later, the price of the stock is $77.5 and the risk-free interest rate is still 5%. What are the forward price and the value of the contract
Establish and maintain an equitable rewards system : Compensation is a comprehensive term which includes wages, salaries and all other allowance and benefits - Establish and maintain an equitable rewards system
What would be Kansas is net dollar cost for the payable : Suppose that In one year despite exchange rate is 0.85 €/. What would be Kansas is net dollar cost for the payable under each strategy
How much revenue from container sales should be recognized : Containers held by customers at December 31, 2020, from deliveries in: 2019 P85,000. How much revenue from container sales should be recognized for 2021
Since the range is six and the standard deviation : It has been reported that the mean number of tattoos carried by an American male is ten tattoos with a range of the distribution of six tattoos and a standard d

Reviews

Write a Review

Accounting Basics Questions & Answers

  Who is taxed on the trust year income

Olinto expressly retained the power to revoke both the income interest and the remainder interest at any time. Who is taxed on the trust's year 1 income

  How much must be deposited at the beginning of years

If they are able to earn 7% per annum, how much must be deposited at the beginning of each of the next eighteen years to fund the education

  What is the balance in Treasury Stock on December

Dietz sold 1,750 shares of the treasury stock for $10 per share. What is the balance in Treasury Stock on December 31 of that year

  Would the result in a gain or a loss included in tunisia

Would this result in a gain or a loss included in Tunisia's 2019 income statement? Include the amount of the gain or loss in your response.

  Challenges related to comparing financial statement

Discuss the challenges related to comparing financial statement prepared in different accounting methods. For example, US GAAP and IFRS.

  Calculate the fixed cost at the low level of activity

High Level of activity is: 1,691 units and $7,147cost. If the low level of activity was 530 units, calculate the fixed cost at the low level of activity

  Revise statements of earnings to reflect the correct amounts

An audit revealed that in determining these amounts, ending inventory for 2016 was understated by $40. Revise statements of earnings to reflect correct amounts

  What depreciation rate will result in the same book values

What depreciation rate will result in the same book values, for both the declining-balance and straight-line methods at the end of 15 years

  Defect of the irr method

One defect of the IRR method is that it assumes that the cash flows to be received from a project can be reinvested at the IRR itself, and that assumption is often not valid. Why do you think this is a correct statement?

  Purchases returns and allowances

Perpetual inventory system. If the account would be included in the chart of accounts of a company using the periodic and perpetual systems, indicate

  What is the bests predicted margin of safety for 2012

To predict revenues for 2012, The Best uses the average for the past five years. The company's breakeven revenue is $800,000 per year. What is The Best's predicted margin of safety for 2012?

  Madison companys variable costs are 25 of sales its

madison companys variable costs are 25 of sales. its selling price is 150 per unit. if weed sells one unit more than

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