Suppose a financial asset, ABC, is the underlying asset for a futures contract with settlement of 6 months from now. You know the following about this financial asset and futures contract in the cash market ABC is selling for $80; ABC pays $8 per year in two semiannual payments of $4, and the next semiannual payment is due exactly 6 months from now; and the current 6month interest rate at which funds can be loaned or borrowed is 6%. a) Compute for the profit for the transaction? b) What is the theoretical (or equilibrium) futures price? c) What action would you take if the futures price is $837 d) What action would you take if the futures price is $76?
Suppose a financial asset, ABC, is the underlying asset for a futures contract with settlement of 6 months from now. You know the following about this financial asset and futures contract in the cash market ABC is selling for $80; ABC pays $8 per year in two semiannual payments of $4, and the next semiannual payment is due exactly 6 months from now; and the current 6month interest rate at which funds can be loaned or borrowed is 6%. a) Compute for the profit for the transaction? b) What is the theoretical (or equilibrium) futures price? c) What action would you take if the futures price is $837 d) What action would you take if the futures price is $76?
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 12MC: (1) What is the value at the end of Year 3 of the following cash flow stream if the quoted interest...
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1. Suppose a financial asset, ABC, is the underlying asset for a futures contract with settlement of 6 months from now. You know the following about this financial asset and futures contract in the cash market ABC is selling for $80; ABC pays $8 per year in two semiannual payments of $4, and the next semiannual payment is due exactly 6 months from now; and the current 6month interest rate at which funds can be loaned or borrowed is 6%.
a) Compute for the profit for the transaction?
b) What is the theoretical (or
c) What action would you take if the futures price is $837
d) What action would you take if the futures price is $76?
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