Goldfinger inc. is a company exploiting a gold mine. Its share is currently traded at $900. Suppose that the yield curve
Posted: Wed May 18, 2022 9:38 pm
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?
(5 marks)
ii) 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., 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)
part c and d please
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?
(5 marks)
ii) 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., 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)
part c and d please