1. A stock is expected to pay a dividend of $1.50 per share in 2 months and 5 months. The stock price is $50, risk free rate is 8%. An investor has taken a long position in a 6 month forward contract on a stock.
a) What is the forward price?
2. A stock is expected to pay a dividend of $1.50 per share in 2 months and 5 months. The stock price is $50 risk free rate is 8%. An investor has taken a long position in a 6 month forward contract on a stock
Three months later the price of the stock is $48 and the risk free rate is 8%. What is the forward price?
3. Suppose you observe that the S&P 500 Index, S, is at a level of 976.67. The riskless rate of interest is 8% per annum and the dividend yield is 4%.
a) What is the theoretical futures price of a six month contract?
4. Determine the optimal hedge ratio for Treasury bonds worth $3,000,000 with a modified duration of 12.45, yielding 11.9 percent if the futures have a price of $90,000, and modified duration of 8.5 years?