673_hw2 - NBA673 Introduction to Derivatives I Tibor Jnosi...

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1 of 2 NBA673 Introduction to Derivatives I Tibor Jánosi Spring 2006 (1 st half) Homework 2: Arbitrage, Forwards, Futures Due in class on February 16. Your answers should be as clear, precise, and brief as possible. Show your work, e.g. write down the formulas you are using and explain very concisely why you are using them. When presenting an abstract argument, make sure that your arguments are logically consistent, complete, and that they cover all cases that might occur. Justify all your claims based on facts given to you in the problem or proven in class. Problem 1: Three months ago you entered into a forward contract to buy stock. The forward contract matures in 100 days’ time and the delivery price is $50.25. Given a change in circumstances, you no longer want the forward contract. To offset the initial forward contract, you enter into a new forward contract to sell stock. The current stock price is $45, the rate of interest is 4.75% per annum, expressed as simple interest rate (and assuming a 365-day year). The stock will not pay any dividends over the life of the contracts. a)
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673_hw2 - NBA673 Introduction to Derivatives I Tibor Jnosi...

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