Question

The S&R index spot price is 1100, the continuously compounded risk-free rate is 5%, and the continuous dividend yield on the index is 2%.

(a) Suppose you observe a 6-month forward price of 1120. What arbitrage would you undertake?

(b) Suppose you observe a 6-month forward price of 1110. What arbitrage would you undertake?

*YOU MUST ANSWER WITH DETAILED WORKING!!

Answer #1

The S&R index spot price is 1100, the continuously
compounded interest rate is 5%, and the dividend yield on the index
is 2%. (Round your answers to two digits after the decimal point
when rounding is necessary)
(A)What is the fair forward price for a 6-month forward?
(B)Suppose you observe a 6-month forward price of 1120, and you
decide to perform an arbitrage strategy. Illustrate the
transactions you will undertake and the amount of profit you will
make from this...

9. The S&R index spot price is 1100, the risk-free rate is
5%, and the dividend yield on the index is 0.
a. Suppose you observe a 6 month forward price of 1135. What
arbitrage would you undertake?
b. Suppose you observe a 6 month forward price of 1115. What
arbitrage would you undertake?

Suppose the 6-month risk free spot rate in HKD is 1%
continuously compounded, and the 6-month risk free rate in NZD is
3% continuously compounded. The current exchange rate is 5
HKD/NZD.
a. Suppose again that our usual assumptions hold, i.e., no
constraints or other frictions. Suppose you can enter a forward
contract to buy or sell NZD 1 for HKD 5. Is there an arbitrage? If
yes, describe an arbitrage strategy. If no, briefly explain why
not.
b. Suppose...

The S&R index level is 900 at t=0. The dividend yield is 3%
p.a. continuously compounded and the risk-free rate is 5%
continuously compounded.
(a) What is the theoretical forward price with a maturity of 1
year?
(b) Suppose you observe a forward price with a maturity of 1
year equal to 950. What position do you take in order to earn
arbitrage profit?
A. Long stock and short forward
B. Long stock and long forward
C. Short stock and...

Suppose the S&R index is 1000 and the dividend yield is
zero. The continuously compounded borrowing rate is 5% while the
continuously compounded lending rate is 4.5%. The maturity of the
forward contract is 6 months.
(a) If there are no transaction costs (of buying/selling index
and futures), and the futures price is 1026. Which of the statement
is true?
A. You can do cash-and-carry arbitrage
B. You can do reverse cash-and-carry arbitrage
C. You can do both cash-and-carry and...

A stock index currently has a spot price of $1,100. The
risk-free rate is 9%, and the index does not pay dividends. You
observe that the 3-month forward price is $990. What arbitrage
strategy would you undertake?
a. Sell a forward contract, borrow $1,100, and buy the stock
index
b. Sell a forward contract, lend $1,100, and short-sell the
stock index
c.Sell a forward contract, borrow $1,100, and short-sell the
stock index
d. Buy a forward contract, borrow $1,100, and...

You are given
(1) A stock's price is 45.
(2) The continuously compounded risk-free rate is 6%.
(3) The stock's continuous dividend rate is 3%.
A European 1-year call option with a strike of 50 costs 6.
Determine the premium for a European 1-year put option with a
strike of 50.

Price a 1 year forward, with continuous compounding risk free
rate of 5%, spot price of $1 and a dividend of $0.10 after 6
months. The price is _______.
0.93
1.75
0.95
1.05

The current continuously compounded risk free interest rate is
4% and we observe today, in May, that the November six months
futures price for gold is £1,200. The one year May futures price
for gold is £1,020.
Is there an arbitrage opportunity?
Demonstrate how we can exploit this arbitrage opportunity (No
need to calculate the profits).

The 6-month forward price of the S&P 500 Index is 1400 and
the volatility of the index is 15%. What is the price of a put
option that expires in 6 months if the strike price is 1450, risk
free rate is 5% (continuous). The dividend yield on the is 3%.

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 2 minutes ago

asked 3 minutes ago

asked 7 minutes ago

asked 8 minutes ago

asked 9 minutes ago

asked 9 minutes ago

asked 11 minutes ago

asked 13 minutes ago

asked 13 minutes ago

asked 14 minutes ago

asked 14 minutes ago