Q: On July 5, a stock index futures contract was at 394
On July 5, a stock index futures contract was at 394.85. The index was at 392.54, the risk-free rate was 2.83 percent, the dividend yield was 2.08 percent, and the contract expired on September 20. De...
See AnswerQ: Given an investor holding a long position two days prior to expiration
Given an investor holding a long position two days prior to expiration, when will he prefer futures contracts to forward contracts? (Do not assume interest rate certainty.)
See AnswerQ: Suppose the U.S. interest rate for the next six
Suppose the U.S. interest rate for the next six months is 1.5 percent (annual compounding). The foreign interest rate is 2 percent (annual compounding). The spot price of the foreign currency in dolla...
See AnswerQ: Suppose you observe a one-year futures price of $100
Suppose you observe a one-year futures price of $100, the futures option strike price of $90, and a 5 percent interest rate (annual compounding). If the futures option call price is quoted at $9.40, i...
See AnswerQ: Buy 100 shares of stock and buy one August 165 put contract
Buy 100 shares of stock and buy one August 165 put contract. Hold the position until expiration. Determine the profits and graph the results. Determine the breakeven stock price at expiration, the max...
See AnswerQ: Using the Black–Scholes–Merton option pricing model and the
Using the Black–Scholes–Merton option pricing model and the generic carry formula for forward contracts (using continuous compounding), demonstrate that Ce S0,T,X Ce f 0 T ,T,X .
See AnswerQ: Suppose there is a futures contract on a portfolio of stocks that
Suppose there is a futures contract on a portfolio of stocks that currently are worth $100. The futures have a life of 90 days, and during that time, the stocks will pay dividends of $0.75 in 30 days,...
See AnswerQ: Suppose that a futures margin account pays interest but at a rate
Suppose that a futures margin account pays interest but at a rate that is less than the risk-free rate. Consider a trader who buys the asset and sells a future to form a risk-free hedge. Would the tra...
See AnswerQ: Calculate the net effect that a change in the annually compounded risk
Calculate the net effect that a change in the annually compounded risk-free rate from 6.83 percent to 6.60 percent would make on the price of a commodity futures contract whose spot price as of March...
See AnswerQ: On July 10, a farmer observes that the spot price of
On July 10, a farmer observes that the spot price of corn is $2.735 per bushel and the September futures price is $2.76. The farmer would like a prediction of the spot price in September but believes...
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