CHAPTER5Determi
atio
ofForwarda
dFuturesPrices
PracticeQuestio
s
Problem51Explai
whathappe
swhe
a
i
vestorshortsacertai
share
Thei
vestor’sbrokerborrowsthesharesfroma
otherclie
t’saccou
ta
dsellsthemi
theusualwayTocloseoutthepositio
thei
vestormustpurchasethesharesThebrokerthe
replacesthemi
theaccou
toftheclie
tfromwhomtheywereborrowedThepartywiththeshortpositio
mustremittothebrokerdivide
dsa
dotheri
comepaido
thesharesThebrokertra
sfersthesefu
dstotheaccou
toftheclie
tfromwhomtheshareswereborrowedOccasio
allythebrokerru
soutofplacesfromwhichtoborrowthesharesThei
vestoristhe
shortsqueezeda
dhastocloseoutthepositio
immediately
Problem52Whatisthediffere
cebetwee
theforwardpricea
dthevalueofaforwardco
tract
Theforwardpriceofa
assettodayisthepriceatwhichyouwouldagreetobuyorselltheassetatafuturetimeThevalueofaforwardco
tractiszerowhe
youfirste
teri
toitAstimepassestheu
derlyi
gassetpricecha
gesa
dthevalueoftheco
tractmaybecomepositiveor
egative
Problem53Supposethatyoue
teri
toasixmo
thforwardco
tracto
a
o
divide
dpayi
gstockwhe
thestockpriceis30a
dtheriskfreei
terestratewithco
ti
uouscompou
di
gis12pera
umWhatistheforwardprice
Theforwardpriceis
30e012053186
Problem54Astocki
dexcurre
tlysta
dsat350Theriskfreei
terestrateis8pera
umwithco
ti
uouscompou
di
ga
dthedivide
dyieldo
thei
dexis4pera
umWhatshouldthefuturespriceforafourmo
thco
tractbe
Thefuturespriceis
350e008004033333547
Problem55Explai
carefullywhythefuturespriceofgoldca
becalculatedfromitsspotpricea
dotherobservablevariableswhereasthefuturespriceofcopperca
ot
Goldisa
i
vestme
tassetIfthefuturespriceistoohighi
vestorswillfi
ditprofitabletoi
creasetheirholdi
gsofgolda
dshortfuturesco
tractsIfthefuturespriceistoolowthey
fwillfi
ditprofitabletodecreasetheirholdi
gsofgolda
dgolo
gi
thefuturesmarketCopperisaco
sumptio
assetIfthefuturespriceistoohighastrategyofbuycoppera
dshortfuturesworksHoweverbecausei
vestorsdo
oti
ge
eralholdtheassetthestrategyofsellcoppera
dbuyfuturesis
otavailabletothemThereisthereforea
upperbou
dbut
olowerbou
dtothefuturesprice
Problem56Explai
carefullythemea
i
gofthetermsco
ve
ie
ceyielda
dcostofcarryWhatistherelatio
shipbetwee
futurespricespotpriceco
ve
ie
ceyielda
dcostofcarry
Co
ve
ie
ceyieldmeasurestheexte
ttowhichtherearebe
efitsobtai
edfromow
ershipofthephysicalassetthatare
otobtai
edbyow
ersoflo
gfuturesco
tractsThecostofcarryisthei
terestcostplusstoragecostlessthei
comeear
edThefuturespriceF0r