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Alexxandr [17]
3 years ago
12

Problem 3 Suppose that the risk-free interest rate is 10% per annum with continuous compounding and that the dividend yield on a

stock index is 4% per annum. The index is standing at 400, and the futures price for a contract deliverable in four months is 405. What arbitrage opportunities does this create?
Business
1 answer:
Flura [38]3 years ago
7 0

Answer:

Please see explanation

Explanation:

To answer the given question, first we will calculate the theoretical future price which shall be determined using continuous compounding formula as follows:

Theoretical future price=400*e^(10%-4%)*4/12

                                      =$408.08

The actual future price of a contract deliverable in 4 months is only $405 which means that the index future price is too low in relation to the index.

The suitable arbitrage strategy shall be:

1. to purchase the future contracts

2.Short sale the shares which are underlying the index

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Answer:

cost of goods available for sales= $3,180

Number of units= 50 units

Explanation:

Giving the following information:

Wattan Company reports beginning inventory of 10 units at $60 each. Every week for four weeks it purchases an additional 10 units at respective costs of $61, $62, $65, and $70 per unit for weeks 1 through 4.

To calculate the cost of goods available for sales, we need to use the following formula:

cost of goods available for sales= beginning inventory + cost of goods purchase during the year

cost of goods available for sales= 10*60 + 10*61 + 10*62 + 10*65 + 10*70

cost of goods available for sales= $3,180

Number of units= 5*10= 50 units

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<u>Situational Influences </u>

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