Exam 4: Pricing Forwards Futures II

You are long a forward on the S&P 500 index that you entered into two months ago and has a month left to maturity.If the one-month rate of interest increases,then,ceteris paribus,

Commodity forward contracts differ from financial forwards in the following manner:

Stock A has a spot price of $50.It is expected to appreciate by 2% over the next quarter.The risk-free rate for the next quarter is 2% in continuously-compounded and annualized terms,and the quarterly continuous dividend payment is also 2% in continuously-compounded and annualized terms.The three-month forward price is

The risk-free interest rate drops but the futures on a stock market index rises.Which of the following statements is the most accurate?

Stock B is trading at $1100.The risk-free rate is 1% for all maturities and the average dividend on the stock is $10 each quarter-end.What is the six-month forward price of the stock,assuming interest calculations are on a continuously-compounded basis?

Using the spot and forward markets to borrow at the implied repo rate entails

Forward pricing by replication depends on the following assumption:

CAP Inc.'s stock is trading at $40.Its beta in the capital asset pricing model (CAPM)is 1.3.The one-year risk-free rate of interest is 2% and the equity premium for one year is assumed to be 6%,both in simple terms.The stock pays no dividends.Use simple interest for compounding.The one-year forward price of CAP's stock is:

If the implied repo rate is lower than the borrowing rate $R_b$ and the lending rate $R_{\ell}$ for the same maturity,what strategy would you adopt to undertake an arbitrage?

A commodity has a spot price of $25 and a one-month forward price of $25.02.The one-month risk-free rate is 2% in continuously compounded and annualized terms.Assuming no other costs or benefits of carry on the commodity,what must be the lower bound on the convenience yield that prevents arbitrage?

The spot price trades at the following bid/ask quote: 100-101 .If the simple interest rate for one year is 2%,which of the following statements is most accurate?

Backwardation becomes more likely when,ceteris paribus,

Two stocks,A and B,have expected returns for one year of $- 10 \%$ and $+ 10 \%$ respectively.The stocks have identical prices of $100 each,do not pay dividends,and the one-year risk-free rate of return is 2% in simple terms.The one-year forward prices of the two stocks are:

Which of the following statements about index futures is false?

If there is a convenience yield,then the following is true of the forward price:

If the stock market index is at a level of 1,120 and the one-year forward on the index is 1,210,what is the implied repo rate in continuously-compounded terms (assuming zero dividends on the index)?

For commodity forwards and futures,which of the following statements is valid?

Consider futures on a stock market index.Which of the following scenarios is most likely to increase the futures-spot basis?

The spot price trades at a bid/ask quote of 100-101 (you can buy at 101 and sell at 100).The one-year forward trades at 99-101.90 (you can buy forward at 101.90 and sell forward at 99).If the simple interest rate for one year is 2%,which of the following statements is most accurate?

The volatility of a stock index falls sharply,the index drops in value,and its expected return increases.Assuming all else (dividend yield,interest rates,etc. )are constant,which of the following is true?