Financial engineers claim to have created a new equity derivative contract called the Basket Forward Contract. It consists of two or more equity securities in a basket. The Forward price in the...

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Answered Same DayApr 08, 2021

Answer To: Financial engineers claim to have created a new equity derivative contract called the Basket Forward...

Lovenesh answered on Apr 08 2021
160 Votes
1.  If the current spot price of JP Morgan is $99.92 and the risk-free interest rate is quoted as 5% pa, what is the forward equity price of JP Morgan in 6 months? If the current spot price of Citibank is $61.22 and its dividend yield has been forecasted as 3% pa, what is the forward equity price of Citibank in 6 months? What is the theoretical forward basket value of the forward contract?
    
    Weight
    Spot Price at t=0
    Spot price at t= 6
    Forward Price
    Forward Price after dividend
    Basket Value
    Citi Bank
    0.3
     $ 61.22
     $ 35.0
     $ 62.75
     $ 62.75
     $ 18.83
    JP...
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