Question

» For each case below, you are the trader on the opposite side of the trade with me at time to( 0) . For each case below, state the trade you will perform with me at time to( 0 For each case, you must explain the reason for your trading decision » Note: You are not permitted to say that you do not want to trade. You must go either long or short . In all cases, both you and I begin with a portfolio of zero (no cash, no stock, options, etc.) 1. I also act as the bank 2. Money required to buy things is borrowed from me. Interest must be paid on the loan. 3. Money received by selling things is loaned to me. I will pay you interest on the savings 4. The borrow and lend interest rates are equal. Both are equal to the risk-free rate. 5. There is no limit on the quantity to buy or sell anything, including short selling of stock. » In all the cases below: 1. The current value of the stock price is So 100. 2. The stock does not pay dividends. 3. For questions involving a stock index, the current value of the index is 1000 points 4. The stock index has a continuous dividend yield of 1.5%. 5. The interest rate is 5% (borrow and lend rates are equal) 6. All the options have the same expiration time of 1 year 7. All the forward/futures contracts have the same expiration time of 1 year

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Answer 1