ActSc 446/846 Winter 2006Assignment 1Due Date: Jan 23 (Monday),2006, On the class1. Describe the profit from the following portfolio: a long forward contract on an underlyingasset, and a long European put option on the asset with the same maturity as the forwardcontract. The strike price of the option is equal to the forward price of the underlying assetas the time the portfolio is set up.2. A 10-year 8% coupon bond currently sells for $90. A 10-year 4% coupon bond currently sellsfor $80. What is the 10-year zero rate?3. Suppose that you enter into a six-month forward contract on a non-dividend-paying stockwhen the stock price is $30 and the risk-free interest rate (with continuous compounding) is12% per annum. What is the forward price? Explain your reason clearly.4. Suppose that the risk-free interest rate is 10% per annum with continuous compounding andthat the dividend yield on a stock index is 4% per annum. The index is standing at $400,and the forward price for a contract deliverable in four months is $405. Does there exist an
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