Question

Suppose that the bid price of Google stock is $498 per share and the asking price...

Suppose that the bid price of Google stock is $498 per share and the asking price is $501 per share. Google does not pay any dividends. Short selling the stock is feasible at zero cost. You can borrow at an annual rate of 5.7 and lend at 4.6% (simple compounding). What is the highest forward price that will not allow arbitrage? Please round to two decimal places.

The answer is 529.56. Please explain

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose that the bid price of Google stock is $498 per share and the asking price...
Suppose that the bid price of Google stock is $498 per share and the asking price is $500 per share. Google does not pay any dividends. Short selling the stock is feasible at zero cost. You can borrow at an annual rate of 6.0 and lend at 4.8% (simple compounding). What is the lowest forward price that will not allow arbitrage? Please round to two decimal places. The answer is 521.9. Please explain
Suppose that the bid price of Google stock is $497 per share and the ask price...
Suppose that the bid price of Google stock is $497 per share and the ask price is $501 per share. Google does not pay any dividends. Short selling the stock is feasible at zero cost. You can borrow at an annual rate of 5.5 and lend at 4.0% (simple compounding). The commission of closing a forward position is $0.8 per share. What is the highest forward price that will not allow arbitrage? Please round to two decimal places. Answer is...
Suppose that the bid price of Google stock is $497 per share and the asking price...
Suppose that the bid price of Google stock is $497 per share and the asking price is $500 per share. Google does not pay any dividends. Short selling the stock is feasible at zero cost. You can borrow at an annual rate of 5.6 and lend at 4.8% (simple compounding). The commission of closing a forward position is $0.4 per share. The short sell cost is $3 payable when the borrowed stock is returned. What is the lowest forward price...
A stock index currently has a spot price of $1,100. The risk-free rate is 9%, 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 bullish on Google stock. The current market price is $52 per share, and you...
You are bullish on Google stock. The current market price is $52 per share, and you have $13,000 of your own to invest. You borrow an additional $13,000 from your broker at an interest rate of 8.2% per year and invest $26,000 in the stock. a. What will be your rate of return if the price of Google stock goes up by 10% during the next year? (Ignore the expected dividend.) (Round your answer to 2 decimal places.) b. How...
Suppose that you short sold 400 shares of Google at the price of $415 per share....
Suppose that you short sold 400 shares of Google at the price of $415 per share. Assume that if Google stock price move in a way such that the loss in your position (per share) is $25 or more, then you would like to close your position provided that your loss (per share) is equal to or less than $30. What kind of order should you place? Your answer has to include the name of the order, whether you are...
A stock is expected to pay a dividend of $1 per share in two months and...
A stock is expected to pay a dividend of $1 per share in two months and in five months. The stock price is $50, 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 six-month forward contract on the stock. What are the forward price and the initial value of the forward contract? Three months later, the price of the stock is $48 and...
ABC stock is currently selling for a price per share of $50. It has announced (not...
ABC stock is currently selling for a price per share of $50. It has announced (not yet paid though) its annual cash dividend of $2 per share. To short the stock, the broker charges the client a fee (stock borrow) of 1% p.a, charged at the time the position is covered. The broker IMR is 50% and MMR is 30% for short sales. Client A sells short 100 shares of ABC stock at $50. A month later, right after the...
There is a stock index futures contract maturing in one year. The risk-free rate of interest...
There is a stock index futures contract maturing in one year. The risk-free rate of interest for borrowing is 4.7% per annum with annualized compounding, and the corresponding risk-free rate for lending is 0.3% per annum lower. Assume that you can reinvest all dividends received up to futures maturity and thereby receive 1.2 index points at futures maturity. The current level of the stock index is 3,385 index points. The bid-ask spread involved in trading the index basket of stocks...
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...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT