1. What is the cost-of-carry model for pricing futures and forward contracts? Provide a “fair” futures...
1. What is the cost-of-carry model for pricing futures and forward contracts? Provide a “fair” futures price for each of the following assets:
a. S&P 500 Index: Contract June (3 months away); Current value of S&P 500 2450; 3-month Libor=2%.
Homework Answers
Cost of Carry model implies that the Future and Forward Prices of assets will be greater than the Current spot price .
As per this model, Future or Forward Price of an asset =Current Spot price +Cost of financing and holding the asset
In case of commodities the cost of storing is included in the cost of holding the assets.
a. For S&P futures, the cost of interest is added to the spot price to arrive at the fair future price.
Current Value =2450
Libor =2%
Interest cost for 3 months =2450*0.02=$50
Fair Future Price of the contract =2450+50=$2,500
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1. What is the cost-of-carry model for pricing futures and
forward contracts? Provide a “fair” futures...
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HOME ASSIGNMENT PROBLEM №1 What is a forward price of an index JKL given the following...
HOME ASSIGNMENT
PROBLEM №1
What is a forward price of an index JKL given the following
information?
Date of pricing: November 15, 2019
Time till expiration: four months / Contract expires on March
15, 2020
Current value of an index: 2 803
Continuously compounded interest rate: 4.5 %
Continuously compounded dividend yield: 2.3%
PROBLEM №2
What is the value of the forward contract (specified in
problem №1) on January 15, 2020 if:
Forward price of contract with the same underlying...
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4. Forward and Futures Prices A. (6 points) Suppose the stock price is $35 and the...
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Chapter 10: Futures Contract and Swaps Exercise: 5, 6, 12, 15, and 20 5.Consider the futures contract written on the S&P 500 index and maturing in 6 months. The interest rate is 3% per 6-month period, and the future value of dividends expected to be paid over the next 6 months is $15. The current index level is 1,425. Assume that you can short sell the S&P index. a. Suppose the expected rate of return on the market is...
HOME ASSIGNMENT
PROBLEM №1
What is a forward price of an index JKL given the following
information?
Date of pricing: November 15, 2019
Time till expiration: four months / Contract expires on March
15, 2020
Current value of an index: 2 803
Continuously compounded interest rate: 4.5 %
Continuously compounded dividend yield: 2.3%
PROBLEM №2
What is the value of the forward contract (specified in
problem №1) on January 15, 2020 if:
Forward price of contract with the same underlying...
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...
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