Question

Ellen Corp. wants to buy GE stock in nine months. Right now the stock is traded...

Ellen Corp. wants to buy GE stock in nine months. Right now the stock is traded at $14.60. The related annual risk-free interest rate is 4.55%. The stock is expected to pay a semi-annual dividend of $0.50 in five months and another $0.50 in eleven months. a. Describe the risk faced by Ellen Corp. b. Suppose Ellen Corp. wants to use equity forward to hedge against the risk. Determine its position. Should they long or short the contract? c. Draw a timeline and clearly mark the following: initiation, maturity, dividend payments. d. Determine the forward price. e. Determine the forward value at initiation. f. Suppose two months later the GE stock is traded at $15.88. Determine the forward’s value to Ellen Corp. g. Nine months later the forward matures. How much will Ellen Corp. pay to the counter party?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

All answers have been clearly mentioned in the screenshot. Leave a comment if any doubt.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A trader wants to buy 500 shares of Stock A and decides to hedge the value...
A trader wants to buy 500 shares of Stock A and decides to hedge the value of her position with futures contracts on Stock B. Each futures contract of Stock B is on 25 shares. Suppose the spot price of Stock A is $5 per share, and the standard deviation of the change in this price over the life of the hedge is estimated to be $0.33. The futures price of Stock B is $4 per shares and the standard...
A trader wants to buy 500 shares of Stock A and decides to hedge the value...
A trader wants to buy 500 shares of Stock A and decides to hedge the value of her position with futures contracts on Stock B. Each futures contract of Stock B is on 25 shares. Suppose the spot price of Stock A is $5 per share, and the standard deviation of the change in this price over the life of the hedge is estimated to be $0.33. The futures price of Stock B is $4 per shares and the standard...
A stock is expected to pay a dividend of $5 per share in 2 months ....
A stock is expected to pay a dividend of $5 per share in 2 months . At initiation, the stock price is $100, and the risk-free rate of interest is 6% per annum with continuous compounding for all maturities. An investor takes a short position in a 9-month forward contract on the stock. It is calculated for you that the present value of the dividend, i.e. I is 4.95. Six months later, the price of the stock is $90 and...
A stock is expected to pay a dividend of $2.50 per share in two (2) months,...
A stock is expected to pay a dividend of $2.50 per share in two (2) months, in six(6) months and in eight(8) month. The stock price is $66, and the risk-free rate of interest is 8% per annum with continuous compounding for all maturities. An investor has just taken a short position in a nine-month forward contract on the stock. What are the forward price and the initial value of the forward contract? Five (5) months later, the price of...
A stock is expected to pay a dividend of $0.50 per share in two month, in...
A stock is expected to pay a dividend of $0.50 per share in two month, in five months and in eight months. The stock price is $20, and the risk-free rate of interest is 5% per annum with continuous compounding for all maturities. You have just taken a short position in a nine-month forward contract on the stock. Seven months later, the price of the stock has become $23 and the risk-free rate of interest is still 5% per annum....
Now suppose Stock A is dividend-paying, with $1 dividend paid for each 3 months. The spot...
Now suppose Stock A is dividend-paying, with $1 dividend paid for each 3 months. The spot price of a Stock A is $5, and the risk-free rate of interest is 8% per annum with continuous compounding. (d) What are the main differences between forwards and futures? (e) What are the forward price and the initial value of a one-year forward contract on one share of Stock A? (f) Four months later, the price of the stock is $6 and the...
Read the attached articles about the proposed merger of Xerox and Fujifilm. Utilizing your knowledge of...
Read the attached articles about the proposed merger of Xerox and Fujifilm. Utilizing your knowledge of external and internal analysis, business and corporate strategy, and corporate governance, please discuss the following questions: 1. What is the corporate strategy behind the merger of Xerox and Fujifilm? 2. Why did Xerox agree to the merger? Is this a good deal for Xerox? Discuss the benefits and challenges they face with the merger. 3. Why did Fujifilm agree to the merger? Discuss the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT