QUESTION 2 A A bond is selling at $950 today. The interest rate is 6%...
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QUESTION 2 A A bond is selling at $950 today. The interest rate is 6% per annum (continuously compounded). What is the price of a six-month forward contract? (5 marks) The price of the bond is $960, two months from today. What is the value of the contract 2 months from today? (10 marks) B A share is selling at $50 today. The interest rate is 8% per annum on a continuously compounded basis. The share is expected to pay a dividend of $0.75 at the end of 6 months. What is the price of a 10-month forward contract? Show your workings. (10 marks) The price of the share is $60, three months from today. What is the value of the contract three months from today? Show your workings. (15 marks) C Discuss the similarities and differences between futures contracts and forward contracts. (10 marks)
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