Ch05_Ch06_HWQuestions

# Ch05_Ch06_HWQuestions - CHAPTER 5 Determination of Forward...

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CHAPTER 5 Determination of Forward and Futures Prices Practice Questions Problem 5.9. A one-year long forward contract on a non-dividend-paying stock is entered into when the stock price is \$40 and the risk-free rate of interest is 10% per annum with continuous compounding. a) What are the forward price and the initial value of the forward contract? b) Six months later, the price of the stock is \$45 and the risk-free interest rate is still 10%. What are the forward price and the value of the forward contract? Problem 5.10. The risk-free rate of interest is 7% per annum with continuous compounding, and the dividend yield on a stock index is 3.2% per annum. The current value of the index is 150. What is the six-month futures price? Problem 5.12. Suppose that the risk-free interest rate is 10% per annum with continuous compounding and that the dividend yield on a stock index is 4% per annum. The index is standing at 400, and the futures price for a contract deliverable in four months is 405. What arbitrage

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## This note was uploaded on 08/06/2011 for the course BMGT 510 taught by Professor Ddt during the Spring '11 term at Ecole Polytechnique Fédérale de Lausanne.

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Ch05_Ch06_HWQuestions - CHAPTER 5 Determination of Forward...

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