S(0) = 55 • Dividends is paid is $2 at 3 months • Risk Free Interest Rate is 5% • S(T) = 60 • T=1(1year) (a) What is the forward price today? (b) What is the value of the forward at 8 months if the stock price at that time is $57.00?
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S(0) = 55 • Dividends is paid is $2 at 3 months • Risk Free Interest Rate is 5% • S(T) = 60 • T=1(1year) (a) What is the forward price today? (b) What is the value of the forward at 8 months if the stock price at that time is $57.00?
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- Question 1 (A) Suppose the LKM stock price is AUD 30, and the continuously compounded interest rate is 5%. (i) What is the 6-month forward price, assuming dividends are zero? (ii) If the 6-month forward price is AUD 30.50, what is the annualized forward premium? (iii) If the 6-month forward price is AUD 30.50, what is the annualized continuous dividend yield (B) Assume an investor has used fifty futures contracts to hedge the price exposure of gold. Each futures contract is on 5000 ounces of gold. At the time the hedge is closed out, the basis is $0.30 per ounce. What is the effect of the basis on the hedger’s financial position? (i) If the trader is hedging for the purchase of gold (ii) If the trader is hedging for the sale of gold (C) Suppose the futures price is 1100 and you wish to acquire a $2.2 million position in the S&P index. (i) How many futures contracts will you buy or sell, if the current value of one futures contract is $275,000? (ii) Suppose that…a) If the dividend yield is 1.40% annualized, the interest rate is -0.10% annualized, and the index is trading at 28, 144 today, what is the expected price of a 6-month forward? 28, 144e(-0.001 -0.0140)*0.50 = 27,961.66 b ) The 6-month forward is currently quoted at 28,000. Using the information above and the grid below, show how you would arbitrage this index profitably. Be sure to indicate whether each transaction is long or short ( buy or sell) and to include (+) and (-) signs on your cash flows. Use 0 decimals (whole numbers only) in your answers. Transaction Time 0 cash flows Time t cash flows Totals:B 1. Suppose XYZ stock’s price is $40 and the continuously compounded interest rate is 5%. a. What is the 6-month forward price, assuming dividends are zero? b. If the forward price is $40.50, what is the annualized continuous dividend yield?
- 1. An analyst estimates that a stock will pay a $1 dividend next year and that it will sell for $40 at year-end. If the required rate of return is 14%, what is the value of the stock? A. $34.60. B. $35.52. C. $35.96.1. An analyst estimates that a stock will pay a $1 dividend next year and that it will sell for $40 at year-end. If the required rate of return is 14%, what is the value of the stock? A. $34.60. B. $35.52. C. $35.96. Please provide an accurte answer.Given the following information from Ivanhoe Corporation, what price would the CAPM predict that the company's stock will trade for one year from today? (Do not round intermediate calculations. Round final answer to 2 decimal places, e.g. 50.75.) Risk free rate: Market risk premium: Beta: Current stock price: Annual dividend: Price $ 2.6 % 8.2 % 0.75 $66.20 $1.79
- Suppose the stock price is $83 and the continuously compounded annual interest rate is 7%. If the 6- month forward price is $85, what is the annualized forward premium? 3.74% 4.35% O 4.76% 5.41%What is the most you should be willing to pay for the stock in the table? Expected Expected Price in 1Dividend in 1 year Required Current Return Price Year $376.29 $3.91 5.80% $89.00Suppose that: The price of a non-dividend-paying stock is$60 The 1-year forward price of the stock is$60 The 1 -year US\$ interest rate is 5%per annum Is there an arbitrage opportunity?
- A stock is expected to pay its first $0.8 dividend in 3 years from now (t=3). The dividend is expected to be paid annually forever and grow by 2% pa. The discount rate is 8% pa. Estimate what the stock price will be in 2.25 years from now. The stock price at time 2.25 is expected to be: Select one: a. $13.9408 b. $13.6675 c. $13.5924 d. $13.1368 e. $12.5855stock X just paid a dividend of $1 and is expected to pay a $3 dividend per year for the foreseeable future. Given that the required rate of return on stock X is 5%, what would be the fair price of stock X 3 year from today? 1. $3.86 2. 4 3. 3.47 4. 4.86 5. 603. a. Suppose a stock pays currently pays a $10 dividend each year and that the dividend is expected to grow at 3% each year. Suppose that the risk-adjusted discount rate for that stock is 8%. According to fundamental analysis stock prices are the present value of expected future dividends (discounted at the risk-adjusted discount rate). What should the current price of this stock be? Hint: a=(1+g)/(1+i) where g is the growth rate in dividends and i is the discount rate for stocks. Use the formula in 2. but let ?? → ∞. b. For the stock in part a, what is the expected rate of return for that stock. c. Suppose that market participants think the stock has become riskier and raise the discount rate for the stock to 10%. What is the new stock price value? What is the expected rate of return for this stock?