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What is the value of your long forward position now

Assignment Help Corporate Finance
Reference no: EM13290560

Q1: (Foward Pricing - use continuous compounding for all questions)

A) A stock index currently stands at 350. The risk-free interest rate is 8% per annum (with continuous compounding) and dividend yield on the index is 4% per annum. What should the forward price for a 4-month delivery be?

B) Assume that the risk-free interest rate is 9% per annum and that the dividend yield on a stock index varies throughout the year. In February, May, August, and November, dividends are paid at a rate of 5% per annum. In other months, dividends are paid at a rate of 2% per annum. On July 31(ex-dividend), the value of the index is1,300. What should be the forward price for delivery on December 31(ex-dividend) of the same year?

Show your answers along with the formula and steps you used for each question.

Q2: (Foward Valuation)

C) On June 1, the 4-month interest rates in Switzerland and the United States were, respectively, 2% and 5% per annum with discrete compouding. The spot price of the Swiss franc was $0.8000/CHF. You took a short position of a CHF forward, CHF 100,000, delivery on October 1. One month later on July 1, three-month interest rates in Switzerland and the United States were, respectively, 2.5% and 4.5% per annum with discrete compouding. The spot exchange rate on the Swiss franc is $0.8020/CHF. On July 1, what is the value of your short position you entered on June 1? Assume the forward contract prices are arbitrage free prices.

D) On June 15, you took a long forward contract (delivery on December 15) on a dividend-paying stock when the stock price was $30 and the risk-free interest rate (with discrete compounding) is 12% per annum. The amount of the dividends were known as $0.75 on Aug 15, and Nov 15. It is now September 15 and the current stock price and the risk-free interest rate are, respectively, $31 and 10%. What is the value of your long forward position now? Assume the forward contract prices are arbitrage free prices.

Show your answers along with the formula and steps you used for each question.

Attachment:- Fin Qs 2.xls

Reference no: EM13290560

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