Question

In: Accounting

The spot price of a certain asset is S0 = $50400 And the price for a...

The spot price of a certain asset is S0 = $50400 And the price for a six months maturity future over such underlying asset is F= $53550

a) Compute the risk free rate (continuous compounding).

b) Combine the spot and the future markets so as to replicate debt. Your wealth is $ 50,400,000, show two strategies that:

 Invest purchasing both, the underlying asset and bonds.

 Invest purchasing only the underlying asset and borrowing money.

(Hint: File called “Options & Futures” by Alejandro Balbás will help you).

Solutions

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