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    Chapter 2

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    11.15. Hoàng Nguyễn Thanh Hương
    This document contains 9 problems related to calculating forward and futures contract prices under different interest rate scenarios and accounting for factors like storage costs, dividends, and arbitrage opportunities. The problems require using interest rate parity conditions and accounting for time value of money concepts to determine the theoretical forward and futures prices based on given spot prices, interest rates, and other cash flow information.

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    Chapter 2

    Uploaded by

    11.15. Hoàng Nguyễn Thanh Hương
    118 views2 pages
    This document contains 9 problems related to calculating forward and futures contract prices under different interest rate scenarios and accounting for factors like storage costs, dividends, and arbitrage opportunities. The problems require using interest rate parity conditions and accounting for time value of money concepts to determine the theoretical forward and futures prices based on given spot prices, interest rates, and other cash flow information.

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    This document contains 9 problems related to calculating forward and futures contract prices under different interest rate scenarios and accounting for factors like storage costs, dividends, and arbitrage opportunities. The problems require using interest rate parity conditions and accounting for time value of money concepts to determine the theoretical forward and futures prices based on given spot prices, interest rates, and other cash flow information.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    118 views2 pages

    Chapter 2

    Uploaded by

    11.15. Hoàng Nguyễn Thanh Hương
    This document contains 9 problems related to calculating forward and futures contract prices under different interest rate scenarios and accounting for factors like storage costs, dividends, and arbitrage opportunities. The problems require using interest rate parity conditions and accounting for time value of money concepts to determine the theoretical forward and futures prices based on given spot prices, interest rates, and other cash flow information.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Chapter 2

    Problems
    2.1 Solve for the price of a forward contract on a generic asset that expires on September
    10 whose spot price as of June 10 is $45, assuming that the annually compounded risk-free
    rate is 6.01 percent.
    2.2 Calculate the net effect that a change in the annually compounded risk-free rate from
    6.83 percent to 6.60 percent would make on the price of a commodity futures contract
    whose spot price as of March 30 was $49.90, assuming that there is a $5.60 storage cost
    and the futures contract expires on November 30.
    2.3 Assume that there is a forward market for a commodity. The forward price of the
    commodity is $45. The contract expires in one year. The risk-free rate is 10 percent. Now
    six months later, the spot price is $52. What is the forward contract worth at this time?
    Explain why this is the correct value of the forward contract in six months even though the
    contract does not have a liquid market as a futures contract does.
    2.4 On a particular day, the S&P 500 futures settlement price was 899.30. You buy one
    contract at the settlement price at around the close of the market. The next day the contract
    opens at 899.70, and the settlement price at the close of the day is 899.10. Determine the
    value of the futures contract at the opening, an instant before the close, and after the close.
    Remember that the S&P futures contract has a $250 multiplier.
    2.5 The following information was available: spot rate for Japanese yen: $0.009313; 730-
    day forward rate for Japanese yen: $0.010475 (assume a 365-day year); U.S. risk-free rate:
    7.0 percent; Japanese risk-free rate: 1.0 percent
    a. Assuming annual compounding, determine whether interest rate parity holds and, if
    not, suggest a strategy.
    b. Assuming continuous compounding, determine whether interest rate parity holds
    and, if not, suggest a strategy.
    2.6 Suppose that you enter into a six-month forward contract on a non-dividend-paying
    stock when the stock price is $30 and the risk-free interest rate (with continuous
    compounding) is 12% per annum. What is the forward price?
    2.7 A one-year long forward contract on a non-dividend-paying stock is entered into when
    the stock price is $40 and the risk-free rate of interest is 10% per annum with continuous
    compounding.
    a) What are the forward price and the initial value of the forward contract?
    b) Six months later, the price of the stock is $45 and the risk-free interest rate is still
    10%. What are the forward price and the value of the forward contract?
    2.8 A stock is expected to pay a dividend of $1 per share in two months and in five months.
    The stock price is $50, and the risk-free rate of interest is 8% per annum with continuous
    compounding for all maturities. An investor has just taken a short position in a six-month
    forward contract on the stock.
    a) What are the forward price and the initial value of the forward contract?
    b) Three months later, the price of the stock is $48 and the risk-free rate of interest is still
    8% per annum. What are the forward price and the value of the short position in the forward
    contract?
    2.9 A trader owns a commodity that provides no income and has no storage costs as part
    of a long-term investment portfolio. The trader can buy the commodity for $1250 per ounce
    and sell gold for $1249 per ounce. The trader can borrow funds at 6% per year and invest
    funds at 5.5% per year. (Both interest rates are expressed with annual compounding.) For
    what range of one-year forward prices does the trader have no arbitrage opportunities?
    Assume there is no bid–offer spread for forward prices.

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