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Unformatted text preview: equal to 2% (assume continuous compounding)? 4. If you are offered a oneyear equity forward contract for $50 and the stock is currently trading for $48, what must the risk free rate be if there is no arbitrage (assume continuous compounding and no dividends paid)? 4a) If the dividend yield is 2%, what is the risk free rate? 4b) If the dividend yield is 2% and assuming annual compounding, what is the risk free rate? 5. Your company is expecting revenues of 2,000,000 euros at the end of the year from the European headquarters. You are concerned about exchange rate fluctuations. You are able to lock in a futures price of $1.2/euro. What happens if the exchange rate falls to $.80/euro? 5a) What if the exchange rate goes up to $1.6/euro?...
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This document was uploaded on 06/09/2010.
 Fall '09

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