Explain the process of creating a synthetic Forward
11. Explain the process of creating a synthetic Forward.
12. Draw the payoff and profit diagrams for a long call position.
13. The S&P 500 Index price is 1992.28 and its annualized dividend yield is 2.30%. LIBOR is .2%. What is the value of a prepaid forward and the forward contract? (Show your Work)
14. An investor wants to hold 200 euro two years from today. The spot exchange rate is $1.31 per euro. If the euro denominated annual interest rate is 3.0% what is the price of a currency prepaid forward?
(a) $200
(b) $206
(c) $231
(d) $247
15. A stock is trading at $20 per share; and, does not pay a dividend. The annual rate of interest is 6%. What is the value of the one year prepaid forward?
Hint
11. Synthetic forwardsynthetic forward is created when an investor why is a forward contract directly from the buyer and the buyer is able to create a position which is exciting to protect for the risk of holding a particular short position of forward....
synthetic forward is created when an investor why is a forward contract directly from the buyer and the buyer is able to create a position which is exciting to protect for the risk of holding a particular short position of forward.
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