Question

You decide to enter a one-year forward contract on a stock S with S(0) = $100 that pays $5 cash dividends in four and eight months. The continuous interest rate is r = 2%.

(a) (3pts) What is the forward price F (0, 1) of this contract?

Six months later, the price of the stock increased to $110. You decide to enter a second forward with the same maturity, i.e. a six-month forward contract.

(b) (3pts) What is the forward price F (1/2, 1) of your second contract?
Four months later, the stock increased to $120. You want to get rid off your obligations in two

months and decide to sell your forward contracts.
(c) (4pts) What is the value of your two forward contracts?

(d) (3pts) How much money did you invest in total? Did you take advantage of an arbitrage opportunity?

Answer 1

) dtiroin a lotos vont suicl Stoch Price = 100$ 8= 2% on ca | Present value of strol S (0.02X41122 divident I, - 5 9.0 3 3 4.91667 $ Iz 50-10.02*434127 4.9338$. (al Forward price 2 6tto dayka Sox por our Bok (96-1,-12). € 060.92+1) HocusC100-4.9667 - 4.93:38. ele L. . 19119196/ with.1191 o umit to +00mm- Enter into Fidga föðucurd contracte OST.CL Ô 2 mil toid 76th 16 $1908 would Price omiti Sor I).eu after on six month 1140.6242 247923GP 19.820 56836712 Z 4.9834. SUIO-46983420, plombzx $ olbalchin_ein Sri 1106.07.2017

I o Poice After total BOOT 10 month. goc CFC 7.2.1. 1x sota 2 months. Duessin tasaso91 Forwäre di = Soul chrice. 2020.05 (0.02*22 2.120.40077 98167 iw w GOT til value of 2.- Forwaarden Contract = I II 100% 11204067822-1-fase col 240.8014 contact at timero 91.9196 - + || otrra) 6:20. 12674 otni quan - contract at time=6 106.0720 Hvame ce time 10169 142.80980 cafted, 10 month) present value of contracts = 42.8098, 04.023 zł - 42.1022 $ d we had invested Norningto yes we have took an 1 Of Arbitrage opportunity advantage Page No.

I hope my efforts will be fruitful to you....?