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3. Forward and Futures Prices You observe the following data on March 15: XYZ Index September...
4. Forward and Futures Prices A. (6 points) Suppose the stock price is $35 and the...
4. Forward and Futures Prices A. (6 points) Suppose the stock price is $35 and the continuously compounded interest rate is 5%. What is the 6-month forward price, assuming dividends are zero? B. (6 points) If the forward price is $35.50, what is the annualized continuous dividend yield? 5. Forward and Futures Prices Suppose you are a market-maker in S&R index forward contracts. The S&R index spot price is 1100, the risk-free rate is 5%, and the dividend yield on...
6. Forward and Futures Prices (16 points) Suppose the S&R index is 800, and that the...
6. Forward and Futures Prices (16 points) Suppose the S&R index is 800, and that the dividend yield is 0. You are an arbitrageur with a continuously compounded borrowing rate of 5.5% and a continuously compounded lending rate of 5%. Supposing that there are no transaction fees, show that a cash-and-carry arbitrage is not profitable if the 1-year forward price is less than 845.23, and that a reverse cash-and-carry arbitrage is not profitable if the 1-year forward price is greater...
You observe that the stock XYZ is currently trading at $8.50. The continuously compounded volatility is...
You observe that the stock XYZ is currently trading at $8.50. The continuously compounded volatility is 20% p.a. The stock is due to pay a $0.25 dividend going ex-dividend in 1 month’s time. 3-month European call and put options written on XYZ trading at $0.65 and $0.45 respectively. The strike price on both options is $8.00. The continuously compounded risk free rate is 6%pa. a) Which theoretical Black-Scholes condition is violated? b) Clearly describe the arbitrage process you would perform...
You are examining the S&P 500 on February 21. You can go long or short in...
You are examining the S&P 500 on February 21. You can go long or short in a value-weighted portfolio of the stocks in the S&P 500, and you scale the value of this portfolio to equal the spot index value of $2,710. The April S&P 500 futures price on February 21 is $2,765, and the contract will be financially settled on April 21 based on the spot index value. The basket of stocks will pay dividends of $8 on March...
Suppose you are a market-maker in the LuSE Index forward contracts. The LUSE Index spot price...
Suppose you are a market-maker in the LuSE Index forward contracts. The LUSE Index spot price is K550 and the annual risk free rate is 5%. i.Calculate the forward price for delivery in 9 months. (3 Marks) ii.If the actual forward price is K561, how can you take advantage on this situation? (4 Marks) iii.What are the problems that you will face in taking advantage of the situation? (3 Marks)
Micro E-mini S&P 500 Futures contract
You have \(\$ 100,000\) to invest today. You are bullish about the stock market and you think that the S\&P 500 index is going up. You want to leverage your investment by taking a long position in S\&P 500 index futures.Micro E-mini S\&P 500 Futures contractThere is a new futures contract on the S\&P 500 index with a lower contract multiplier-only 5 times the index. You are using this contract to implement your strategy. You chose the contract expiring on...
You have the following market data. The Russell 2000 market index currently is 1678. The annualized,...
You have the following market data. The Russell 2000 market index currently is 1678. The annualized, continuously compounded dividend yield on this index is 3.06%. The futures contract on this index has an index multiplier of 50. The annualized, continuously compounded risk-free rate is 1.24%. The index futures contract that expires in 6 months has a futures price of 1796.65. What is the total net profit if you execute the arbitrage strategy with one futures contract? Do not round values...
On June 15, you took a long forward contract (delivery on December 15) on a dividend-paying...
On June 15, you took a long forward contract (delivery on December 15) on a dividend-paying stock when the stock price was $30 and the risk-free interest rate (with discrete compounding) is 12% per annum. The amount of the dividends were known as $0.75 on Aug 15, and Nov 15. It is now September 15 and the current stock price and the risk-free interest rate are, respectively, $31 and 10%. What is the value of your long forward position now?...
On 1 January you sold one March maturity S&P/ASX 200 index futures contract at a futures...
On 1 January you sold one March maturity S&P/ASX 200 index futures contract at a futures price of 700. If the futures price is 800 on 1 February, what is your profit? The contract multiplier is $25. In other words, the contract calls for delivery of $25 times the value of index. 1 index point move translates into a $25 change in the value of the contract. a. $100 b. -$100 c. $700 d. $2,500 e. -$2,500 Which one of...
- On 8/15/2019, a 3-year forward contract, expiring 8/15/2022, on a non-dividend-paying stock was entered into...
- On 8/15/2019, a 3-year forward contract, expiring 8/15/2022, on a non-dividend-paying stock was entered into when the stock price was $55 and the risk-free interest rate was 10.8% per annum with continuous compounding. 1 year later, on 8/15/2020, the stock price becomes $58. What is the "delivery" price of the forward contract entered into on 8/15/2019? Round your answer to the nearest 2 decimal points. For example, if your answer is $12.345, then enter "12.35" in the answer box....
4. Forward and Futures Prices A. (6 points) Suppose the stock price is $35 and the continuously compounded interest rate is 5%. What is the 6-month forward price, assuming dividends are zero? B. (6 points) If the forward price is $35.50, what is the annualized continuous dividend yield? 5. Forward and Futures Prices Suppose you are a market-maker in S&R index forward contracts. The S&R index spot price is 1100, the risk-free rate is 5%, and the dividend yield on...
6. Forward and Futures Prices (16 points) Suppose the S&R index is 800, and that the dividend yield is 0. You are an arbitrageur with a continuously compounded borrowing rate of 5.5% and a continuously compounded lending rate of 5%. Supposing that there are no transaction fees, show that a cash-and-carry arbitrage is not profitable if the 1-year forward price is less than 845.23, and that a reverse cash-and-carry arbitrage is not profitable if the 1-year forward price is greater...
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