Assignment1 - The Johnson School at Cornell University...

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Page 1 of 3 The Johnson School at Cornell University Professor George Gao NBA 6730 Fall 2010 Assignment 1 Note: This assignment is due on Thursday, September 9 . There are two parts of assignment. Please work on these problems in groups of three to five people, and hand in one solution per group. You may discuss the problems only with the members of your group. Answers should be typed and are due at the beginning of class . You are allowed to form a study group by working with students in another section, but the assignment must be turned in at the beginning of class of the earliest section in which any group member is enrolled. Part I 1. A company enters into a short futures contract to sell 5,000 bushels of corn for 200 cents per bushel. The initial margin is $3,000 and the maintenance margin is $2,000. What price change would lead to a margin call? 2. The Intel stock is trading at $100 per share. The annualized risk-free interest rate with continuous compounding (c.c.) is 5.0%. The market assumes that Intel will not pay any dividends within the next 3 months. a) What is the forward price to purchase one share of Intel stock in 3 months? b) Suppose that Intel suddenly announces a dividend of $1 per share in exactly 2 months and assume that the Intel stock price does not change upon the announcement. What is the new 3-month forward price for the Intel stock?
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Assignment1 - The Johnson School at Cornell University...

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