What is the value of the forward contract

Assignment Help Finance Basics
Reference no: EM131773687

Question: Consider a 12-month long forward contract on a stock currently priced at $90. The risk-free interest rate is 7% per annum, compounded continuously. Suppose that dividend payments of $8 per share are expected after 4 months and $7 after 8 months.

(a) Determine the forward price at time 0.

(b) What is the value of this forward contract 6 months from now if the stock price at that time is $95? (c) Suppose that the value of this forward contract 6 months from now is $5. Determine whether there is an arbitrage opportunity. If one exists in this situation, construct an arbitrage portfolio and find the profit realized.

Reference no: EM131773687

Questions Cloud

What is the rule of law for her prosecution : Sally Hyde was arrested and charged with possession of marijuana at the annual “Hash Bash”. What is the Rule of Law for her prosecution?
What is the value of the fund portfolio : The fund has liabilities of $2 million and 1,600,000 shares have been issued. What is the value of the fund's portfolio
Define and discuss importance of organization culture : Define and discuss importance of organization culture and Explain what a sociogram is and how it can be used to collect data on a work group
Discuss financial statements of manufacturing companies : Identify any common difference between financial statements of manufacturing companies and financial statements of companies which only buy and resell
What is the value of the forward contract : What is the value of this forward contract 6 months from now if the stock price at that time is $95? (c) Suppose that the value of this forward contract.
Compute the amount that jackson company has to pay : Returns and allowances (before payment), $2,200, Compute the amount that Jackson Company has to pay to the seller for the goods
Accountant for large successful public corporation : Lawrence is employed as an accountant for a large successful public corporation and he was promoted to work in the President’s Office,
Calculate the long-run market share : Calculate the long-run market share that the company can anticipate under these assumptions.
Compute the amount that coleman company has to pay : Coleman Company purchased goods with the following terms and details:Sales price, $13,000, Compute the amount that Coleman Company has to pay to the seller

Reviews

Write a Review

Finance Basics Questions & Answers

  Te equipment account increased 40000 as a result of a

in garland company land decreased 140000 because of a cash sale for 140000 the equipment account increased 40000 as a

  Which project should the company invest in

The other alternative is the purchase of a supermarket chain, also costing $100 million. It too, has an expected net present value of $20 million. The firms management is interested in reducing the variability of its earnings.

  Preparation for problems and opportunities

A business plan is simply a plan looking ahead for an organization. Inside of plan includes allocating resources, the focus points of an organization and a preparation for problems and opportunities.  Chose an organization which is widely known or..

  What is endowment tax liability on its dividend income

Based on the information give what is the current market price of Hack's preferred stock and what is Endowment's tax liability on its dividend income?

  What are the basic assumptions in applying the pe ratio of

what are the basic assumptions in applying the pe ratio of one company to the earnings of another

  What would be your capital budget

Which projects would you accept and why? Yes, I need to see some "number crunching". What would be your capital budget? Which projects would you accept and why?

  What is the share price premium to nav for reit ii

How does financial leverage affect REIT share price premium (or discount) to NAV? Consider two REITs with identical assets.

  Find the discounted payback period for each project

Assume that the two projects are mutually exclusive and the cost of capital is 5%. Which project or projects should the company undertake? Base your results on the MIRR.

  What is the cost of common from retained earnings

You have been hired as a consultant to help estimate the cost of capital. You have been provided with the following data: rRF = 4.10%; RPM = 5.25%; and b = 1.30. Based on the CAPM approach, what is the cost of common from retained earnings?

  Provide examples of both attest and non-attest services

Give examples of both attest and non-attest services. Why you think it is important for an auditor to know difference between attest and non-attest services.

  Calculate the degree of financial leverage in base year 1

If earnings before interest and tax decrease to $800,000 in Year 2, what will be the new level of earnings, assuming the same tax rate as in Year 1?

  What factors should a company consider

What factors should a company consider when it decides whether to invest in a project today or to wait until more information becomes available?

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