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 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):
i) How much do you pay today to enter the short
position?
ii) Is this trade an arbitrage strategy? Justify your
answer in no more than 3 lines.
c) Suppose you are certain that next year, i.e., at t = 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)