Question 1 Goldfinger inc. is a company exploiting a gold mine. Its share is currently traded at $900. Suppose that the

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Question 1 Goldfinger Inc Is A Company Exploiting A Gold Mine Its Share Is Currently Traded At 900 Suppose That The 1 (71.01 KiB) Viewed 36 times

Question 1 Goldfinger inc. is a company exploiting a gold mine. Its share is currently traded at $900. Suppose that the yield curve for risk-free rates is flat at r=1% per year. a) What is the no-arbitrage 6-month forward price for one share of Goldfinger? (10 marks) b) Today you enter a short position in a 6-month forward contract on 500 shares of Goldfinger at the forward price calculated in part a): 1) How much do you pay today to enter the short position? (5 marks) ) Is this trade an arbitrage strategy? Justify your answer in no more than 3 lines. (5 marks) C) Suppose you are certain that next year, i.e., att = 1 Year, Goldfinger will pay a dividend of $90 per share. Today, you observe in the market an 18-month forward price of $800. Identify an arbitrage strategy specifying all the transactions that your strategy will involve. (10 marks) d) Suppose that the CAPM holds, the beta of Goldfinger stock is -0.2. Goldfinger has issued some bonds that are subject to default risk. In case of a recession in the economy, does Goldfinger bonds' default risk increase or decrease? Briefly explain why in no more than 4 lines. (10 marks)