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1. A stock index currently stands at $400. The continuously compounded risk-free interest rate is 7%. The dividend yield on the index is 3.5%.

(1) Find the 6-month forward price.

(2) Find the prepaid 6-month forward price.

2. Consider different one-year European options, each on ABC stock. Today, you enter into the following portfolio of these one-year options: purchase one 20-strike put for a premium of $4.00; purchase one 20-strike call for $5.00; and sell one 30-strike call for $1.50. Let the price of ABC stock one year from now be 24. The continuously-compounded annual interest rate is 5%. Find the profit or loss from this option portfolio on the expiration date of the options, one year from now. (Consider the time value of money on the option premiums.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92647959

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