Suppose that you, on 1st of January 2024, enter a long position in a 10-year forward contract on a non-dividend-paying stock. The stock price is $50, and the risk-free rate of interest is 5% per annum with yearly compounding (as per 1st of January 2024). Five years later, 1st of January 2029, the price of the stock is $60, and the risk-free interest rate is still 5%. ` A). On 1st of January 2029 what is the value to the party holding the short position in the contract entered into on 1st of January 2024? Explain.
Suppose that you, on 1st of January 2024, enter a long position in a 10-year forward contract on a non-dividend-paying stock. The stock price is $50, and the risk-free rate of interest is 5% per annum with yearly compounding (as per 1st of January 2024). Five years later, 1st of January 2029, the price of the stock is $60, and the risk-free interest rate is still 5%. ` A). On 1st of January 2029 what is the value to the party holding the short position in the contract entered into on 1st of January 2024? Explain.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Suppose that you, on 1st of January 2024, enter a long position in a 10-year forward contract on a non-dividend-paying stock. The stock price is $50, and the risk-free rate of interest is 5% per annum with yearly compounding (as per 1st of January 2024).
Five years later, 1st of January 2029, the price of the stock is $60, and the risk-free interest rate is still 5%. `
A). On 1st of January 2029 what is the value to the party holding the short position in the contract entered into on 1st of January 2024? Explain.
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