Reference no: EM133038300

Questions -

Q1. A stock index currently stands at 350. The risk-free interest rate is 8% per annum (with continuous compounding) and the dividend yield on the index is 4% per annum. What should the futures price for a four-month contract be?

a) $352.7

b) $351.7

c) $357.7

d) $354.7

Q2. For non-dividend paying stock index, the current price is 1100 and the 6-month forward price is 1150. Assume the price of the stock index in 6 months will be 1210. Which of the following is true regarding forward positions in the stock index?

a) Long position gains 50

b) Long position gains 60

c) Long position gains 110

d) Short position gains 60

Q3. A one-year forward contract on a stock has a price of $75. The stock is expected to pay a dividend of $1.50 at two future times, six months from now and one year from now, and the annual effective risk-free interest rate is 6%. Calculate the current stock price. [Hint: use discrete compounding]

a) 75.81

b) 73.63

c) 70.75

d) 77.87