Suppose HSU stock price is currently $50 per share. The stock pays no dividends. The futures...
Suppose HSU stock price is currently $50 per share. The stock pays no dividends. The futures price for a HSU contract deliverable in 4 months is $48 per share. The contract size is 200 shares. The interest rate is 3% per annum with continuous compounding. Assume that there are no transaction costs.
(a) Is there an arbitrage opportunity for a trader? Explain with
calculations. (8 marks)
(b) Explain the details of the arbitrage transaction now and in 4
months respectively. (12 marks)
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Suppose HSU stock price is currently $50 per share. The stock
pays no dividends. The futures...
A stock is expected to pay a dividend of $1.50 per share in three months and...
A stock is expected to pay a dividend of $1.50 per share in three months and in six months. The stock price is currently $45and the risk-free rate is 6% per annum with continuous compounding for all maturities. An investor has just taken a short position in seven-month forward contract on the stock. #1) What is the forward price for no arbitrage opportunity? #2) What is the initial value of the forward contract? 4 months later. Now, the price of the...
Suppose that the risk-free interest rate is 8% per annum with continuous compounding and that the dividend yield on a st...
Suppose that the risk-free interest rate is 8% per annum with continuous compounding and that the dividend yield on a stock index is 3% per annum with continuous compounding. The index is standing at 350 and the futures price for a contract deliverable in 6months is 360. #1) What should be the theoretical futures price for the stock index? #2) What arbitrage opportunities does this create? #1) theoretical futures price = $366.38 #1) theoretical futures price = $358.86 #1) theoretical...
2)The current spot price of Priceline’s stock is $1,578 and pays no dividends for the next...
2)The current spot price of Priceline’s stock is $1,578 and pays no dividends for the next 6 months. The current 6-month future price on Priceline is $1,617.50. The current 6-month risk-free rate is 5% per annum with continuous compounding. If there is a $20 transaction fee for the combination of all transactions made, paid today, can you make an arbitrage profit? If there is an arbitrage, how much would you make using 50 shares of Priceline? Otherwise prove an arbitrage...
3. Suppose that the risk-free interest rate is 6% per annum dividend yield on a stock...
3. Suppose that the risk-free interest rate is 6% per annum dividend yield on a stock index is 4% per annum. The index is standing at 400, and the futures price for a contract deliverable in four months is 405. What arbitroge opportunities does this create? with continuous compounding and that the
50.The oil price is currently $95 per barrel. The risk-free interest rate is 3% per annum,...
50.The oil price is currently $95 per barrel. The risk-free interest rate is 3% per annum, and the convenience yield of oil is 4% per annum. Consider an oil futures contract with a maturity of 6 months. Assuming the 6 months storage cost is equal to $1.50 per barrel, the no-arbitrage futures price is closest to: (a) 95.02 (b) 95.55 (c) 96.02 (d)96.55
A stock is currently priced at $47.00 and pays a dividend yield of 3.7% per annum....
A stock is currently priced at $47.00 and pays a dividend yield of 3.7% per annum. The risk-free rate is 5.3% per annum with continuous compounding. In 18 months, the stock price will be either $40.89 or $52.64. Using the binomial tree model, compute the price of a 18 month European call with strike price $48.74.
A stock is currently priced at $51.00 and pays a dividend yield of 4.3% per annum....
A stock is currently priced at $51.00 and pays a dividend yield of 4.3% per annum. The risk-free rate is 5.7% per annum with continuous compounding. In 12 months, the stock price will be either $41.31 or $57.12. Using the binomial tree model, compute the price of a 12 month European call with strike price $50.32.
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 stock price is currently $10. It is known that at the end of three months...
A stock price is currently $10. It is known that at the end of three months it will be either $11 or $8.5. The risk‐free interest rate is 5% per annum with continuous compounding. Suppose ST is the stock price at the end of three months. (a) What is the value of a derivative that pays off ln(ST) at this time? Use both the no arbitrage and risk neutral valuation approach. (b) What is the delta of the derivative in...
A stock price is currently $20. It is known that at the end of one month that the stock price wil...
A stock price is currently $20. It is known that at the end of one month that the stock price will either increase to 22 or decrease to 16. The risk-free interest rate is 12% per annum with continuous compounding. The hedge portfolio is a long position in Δ shares of stock plus one short Euorpean call option with strike price of $20 and expiration in 1 month. Using the no-arbitrage method, what is the present value of this hedge...
3. Suppose that the risk-free interest rate is 6% per annum dividend yield on a stock index is 4% per annum. The index is standing at 400, and the futures price for a contract deliverable in four months is 405. What arbitroge opportunities does this create? with continuous compounding and that the
50.The oil price is currently $95 per barrel. The risk-free interest rate is 3% per annum, and the convenience yield of oil is 4% per annum. Consider an oil futures contract with a maturity of 6 months. Assuming the 6 months storage cost is equal to $1.50 per barrel, the no-arbitrage futures price is closest to: (a) 95.02 (b) 95.55 (c) 96.02 (d)96.55
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 stock price is currently $20. It is known that at the end of one month that the stock price will either increase to 22 or decrease to 16. The risk-free interest rate is 12% per annum with continuous compounding. The hedge portfolio is a long position in Δ shares of stock plus one short Euorpean call option with strike price of $20 and expiration in 1 month. Using the no-arbitrage method, what is the present value of this hedge...
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