Chapter 5 Determination of Forward and Futures Prices

3) The spot price of an investment asset that provides no income is $30 and the risk-free rate for all maturities (with continuous compounding) is 10%. What is the three-year forward price? A) $40.50 B) $22.22 C) $33.00 D) $33.16

a

2) An investor shorts 100 shares when the share price is $50 and closes out the position six months later when the share price is $43. The shares pay a dividend of $3 per share during the six months. How much does the investor gain?

b

4) The spot price of an investment asset is $30 and the risk-free rate for all maturities is 10% with continuous compounding. The asset provides an income of $2 at the end of the first year and at the end of the second year. What is the three-year forward price? A) $19.67 B) $35.84 C) $45.15 D) $40.50

b

1) Which of the following is a consumption asset? A) The S&P 500 index B) The Canadian dollar C) Copper D) IBM stock

c

5) An exchange rate is 0.7000 and the six-month domestic and foreign risk-free interest rates are 5% and 7% (both expressed with continuous compounding). What is the six-month forward rate? A) 0.7070 B) 0.7177 C) 0.7249 D) 0.6930

d