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(1 point) Consider a forward contract on a commodity with a current price of $750 and...
Suppose that a one-year forward contract is entered into for a commodity X with a spot...
Suppose that a one-year forward contract is entered into for a commodity X with a spot price at that time of 1000. Say after 3 months that the spot price for X has increased to 1030. If we assume a force of interest rate of 4%, find the value of the short position in the forward contract after 3 months.
Find the no-arbitrage forward price Question 1 (Forward Contracts) Consider a good that has a spot...
Find the no-arbitrage forward price
Question 1 (Forward Contracts) Consider a good that has a spot price of Pe = 100 Euros today. The riskless interest rate is r = 10%. a) Find the no-arbitrage forward price for a forward contract on this under- lying good that matures in sixth months time from now! b) Assume that you enter into a forward contract as a buyer and promise to buy a quantity of 100,000 units of the good (at the...
Suppose you bought a forward contract on January 1 that matures six months later. The forward...
Suppose you bought a forward contract on January 1 that matures six months later. The forward price was $220 at the time of purchase, and the continuously compounded interest rate was 8% per year. Three months have passed, and the spot price is now $150. What is the value of your forward contract today?
Consider a forward contract to purchase a coupon-bearing bond whose current price is $900. Suppose the...
Consider a forward contract to purchase a coupon-bearing bond whose current price is $900. Suppose the forward contract matures in 9 months. Assume the coupon payment of $40 is expected after 4 months. Assume that the 4-month and 9-month risk-free continuously compounded interest rate are 3% and 4% per annum, respectively. Suppose the forward price is $910. Is there an arbitrage opportunity? If so, how do you take advantage of the arbitrage opportunity?
Question 1 - (25 points) (a) Consider a 2-year forward contract to buy a coupon-bearing bond...
Question 1 - (25 points) (a) Consider a 2-year forward contract to buy a coupon-bearing bond that will mature 2 year from today. The current price of the bond is $102. Sup- pose that on that bond 4 coupon payments of $6 are expected after 6 months, 12 months, 18 months and 24-months. We assume that the 6-month, 12- month, 18-month and 24-month risk-free interest rates (continuously com- pounded) are, respectively, 1%, 1.3%, 1.6% and 1.9% per annum. Determine the...
5. (a) Explain the differences between a forward contract and an option. [2] (b) An investor...
5. (a) Explain the differences between a forward contract and an option. [2] (b) An investor has taken a short position in a forward contract. If Sy is the price of the underlying stock at maturity and K is the strike, what is the payoff for the investor? Does the investor expect the underlying stock price to increase or decrease? Explain your answer. (2) (c) (i) An investor has just taken a short position in a 6-month forward contract on...
It costs $1 to buy a forward contract that has been initiated. The contract will deliver...
It costs $1 to buy a forward contract that has been initiated. The contract will deliver one share of the underlying stock in 6 months from now for F = 110. Current price of the underlying stock is $108, and interest rate is r yield of the stock 10% continuously compounded. Find the continuous dividend 41 7- 12 Mulhy F-10 08
It costs $1 to buy a forward contract that has been initiated. The contract will deliver one share of...
Problem 2. Forward prices and value [25 marks] a) [5] Suppose there is a 16 months...
Problem 2. Forward prices and value [25 marks] a) [5] Suppose there is a 16 months Forward on 1 share of non- dividend paying stock traded in the market. Current stock prices are $50 and the Forward price is $57. What is the interest rate (continuously compounded) implied by the given Forward price? b) [6] Suppose that actual interest rates are 7% per annum (continuously compounded as well). Find the Fair price of Forward contract and explain your arbitrage strategy....
Exercise 3. A short forward contract on a dividend-paying stock was entered some time ago. It currently has 9 months to maturity. The stock price and the delivery price is s25 and $24 respectively. T...
Exercise 3. A short forward contract on a dividend-paying stock was entered some time ago. It currently has 9 months to maturity. The stock price and the delivery price is s25 and $24 respectively. The risk-free interest rate with continuous compounding is 8% per annum. The underlying stock is expected to pay a dividend of $2 per share in 2 months and an another dividend of $2 in 6 months. (a) What is the (initial) value of this forward contract?...
A short forward contract that was negotiated some time ago will expire in six months and...
A short forward contract that was negotiated some time ago will expire in six months and has a delivery price of $150 (agreed upon price at inception). Today’s forward price for a six-month forward contract on the same underlying is $173. The six month risk-free interest rate (with continuous compounding) is 5% per year. What is today’s value of the short forward contract?
Find the no-arbitrage forward price
Question 1 (Forward Contracts) Consider a good that has a spot price of Pe = 100 Euros today. The riskless interest rate is r = 10%. a) Find the no-arbitrage forward price for a forward contract on this under- lying good that matures in sixth months time from now! b) Assume that you enter into a forward contract as a buyer and promise to buy a quantity of 100,000 units of the good (at the...
Question 1 - (25 points) (a) Consider a 2-year forward contract to buy a coupon-bearing bond that will mature 2 year from today. The current price of the bond is $102. Sup- pose that on that bond 4 coupon payments of $6 are expected after 6 months, 12 months, 18 months and 24-months. We assume that the 6-month, 12- month, 18-month and 24-month risk-free interest rates (continuously com- pounded) are, respectively, 1%, 1.3%, 1.6% and 1.9% per annum. Determine the...
5. (a) Explain the differences between a forward contract and an option. [2] (b) An investor has taken a short position in a forward contract. If Sy is the price of the underlying stock at maturity and K is the strike, what is the payoff for the investor? Does the investor expect the underlying stock price to increase or decrease? Explain your answer. (2) (c) (i) An investor has just taken a short position in a 6-month forward contract on...
It costs $1 to buy a forward contract that has been initiated. The contract will deliver one share of the underlying stock in 6 months from now for F = 110. Current price of the underlying stock is $108, and interest rate is r yield of the stock 10% continuously compounded. Find the continuous dividend 41 7- 12 Mulhy F-10 08
It costs $1 to buy a forward contract that has been initiated. The contract will deliver one share of...
Problem 2. Forward prices and value [25 marks] a) [5] Suppose there is a 16 months Forward on 1 share of non- dividend paying stock traded in the market. Current stock prices are $50 and the Forward price is $57. What is the interest rate (continuously compounded) implied by the given Forward price? b) [6] Suppose that actual interest rates are 7% per annum (continuously compounded as well). Find the Fair price of Forward contract and explain your arbitrage strategy....
Exercise 3. A short forward contract on a dividend-paying stock was entered some time ago. It currently has 9 months to maturity. The stock price and the delivery price is s25 and $24 respectively. The risk-free interest rate with continuous compounding is 8% per annum. The underlying stock is expected to pay a dividend of $2 per share in 2 months and an another dividend of $2 in 6 months. (a) What is the (initial) value of this forward contract?...
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