What is no-arbitrage forward price for delivery

Assignment Help Business Management
Reference no: EM133032561

Question I:

Suppose you are a market-maker in S&R index forward contracts. The S&R index spot price is 1100, the risk-free rate is 5%, and the dividend yield on the index is 1.5%.

(a) What is the no-arbitrage forward price for delivery in 9 months?

(b) Suppose a customer wishes to enter a short index futures position. If you take the opposite position, demonstrate how you would hedge your resulting long position using the index and borrowing or lending.

(c) Suppose a customer wishes to enter a long index futures position. If you take the opposite position, demonstrate how you would hedge your resulting short position using the index and borrowing or lending.

Question II:

The S&R index spot price is 1100, the risk-free rate is 5%, and the continuous dividend yield on the index is 2%.

(a) Suppose you observe a 6-month forward price of 1120. What arbitrage would you undertake? (b) Suppose you observe a 6-month forward price of 1110. What arbitrage would you undertake?

Question III:

The current value of an S&R futures is 1000$. You buy 50 futures on the S&R and the contract size is 500$. The margin is settled on a weekly basis and the margin is 12.5% of the notional value. Margin calls are made as soon as the the margin is below 75% of the initial margin level. We assume that r =5%. Use an Excel spreadsheet to calculate the profit over the whole period for a) Futures and b) Forward contract. Upload your Excel Spreadsheet with the detailed calculations on Avenue to Learn under Assessments/Assignments/Assignment II (Question III). Please write your name on Excel file.

Question IV:

The S&R index spot price is 1100 and the continuously compounded risk-free rate is 5%. You observe a 9-month forward price of 1129.257.

(a) What dividend yield is implied by this forward price?

(b) Suppose you believe the dividend yield over the next 9 months will be only 0.5%. What arbitrage would you undertake?

(c) Suppose you believe the dividend yield will be 3% over the next 9 months. What arbitrage would you undertake?

Reference no: EM133032561

Questions Cloud

Lawsuit-mediation or arbitration : A woman is passed over for promotion and instead, the job is awarded to a man with less experience. She believes that this is a case of sex discrimination.
International finance globalization : How would you measure the level of globalization of a country /region? Apply concepts and theories learned from this course in your discussion.
Locations-offshoring and outsourcing : Analyze the company's decisions and strategy regarding site selection, outsourcing, and offshoring operations.
Pandemic-related restrictions : Are suburban locations likely to continue to be good options, as the pandemic-related restrictions continue to loosen? Why or why not?
What is no-arbitrage forward price for delivery : Suppose you are a market-maker in S&R index forward contracts. What is the no-arbitrage forward price for delivery in 9 months?
Work for small company that exports products : Let's assume you work for a small company that exports products. Research the various steps and procedures necessary to use an EMC and how different EMCs work.
Global garment industry value chain : Describe the global garment industry value chain? Why do clothing companies use manufacturing contractors in Bangladesh?
Developing and implementing sustainability strategies : Other than the obvious need to protect the planet, explain why companies should be interested in developing and implementing sustainability strategies
Quality indicators in long-term care and home health care : How do quality standards for long-term care and home health care vary in comparison to quality standards for other types of health care organizations?

Reviews

Write a Review

Business Management Questions & Answers

  Caselet on michael porter’s value chain management

The assignment in management is a two part assignment dealing 1.Theory of function of management. 2. Operations and Controlling.

  Mountain man brewing company

Mountain Man Brewing, a family owned business where Chris Prangel, the son of the president joins. Due to increase in the preference for light beer drinkers, Chris Prangel wants to introduce light beer version in Mountain Man. An analysis into the la..

  Mountain man brewing company

Mountain Man Brewing, a family owned business where Chris Prangel, the son of the president joins. An analysis into the launch of Mountain Man Light over the present Mountain Man Lager.

  Analysis of the case using the doing ethics technique

Analysis of the case using the Doing Ethics Technique (DET). Analysis of the ethical issue(s) from the perspective of an ICT professional, using the ACS Code of  Conduct and properly relating clauses from the ACS Code of Conduct to the ethical issue.

  Affiliations and partnerships

Affiliations and partnerships are frequently used to reach a larger local audience? Which options stand to avail for the Hotel manager and what problems do these pose.

  Innovation-friendly regulations

What influence (if any) can organizations exercise to encourage ‘innovation-friendly' regulations?

  Effect of regional and corporate cultural issues

Present your findings as a group powerpoint with an audio file. In addition individually write up your own conclusions as to the effects of regional cultural issues on the corporate organisational culture of this multinational company as it conducts ..

  Structure of business plan

This assignment shows a structure of business plan. The task is to write a business plane about a Diet Shop.

  Identify the purposes of different types of organisations

Identify the purposes of different types of organisations.

  Entrepreneur case study for analysis

Entrepreneur Case Study for Analysis. Analyze Robin Wolaner's suitability to be an entrepreneur

  Forecasting and business analysis

This problem requires you to apply your cross-sectional analysis skills to a real cross-sectional data set with the goal of answering a specific research question.

  Educational instructional leadership

Prepare a major handout on the key principles of instructional leadership

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