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Bac 309 Financial Derivatives ASSIGNMENT DUE20/07/2021
Bac 309 Financial Derivatives ASSIGNMENT DUE20/07/2021
ASSIGNMENT DUE20/07/2021
Q 1 i)Distinquish between commodity and financial markets
ii) ) Suppose the sport price for a barrel of oil is ksh 500 per barrel in January 2020.The one
year futures price was ksh 550 per barrel while the interest rate is 7%. What is the net
convenience yield?
iii) Briefly outline the main differences between a future and a forward contract(15mks)
Q2 i)Susan owns dividend paying stock that is currently worthy ksh 500 .He plans to sell the
stock in 90 days and in order to hedge against a possible price fluctuation he takes a short
position in a forward contract that expires in 90 days. The risk free rate is 9% while over the
next 90 days the stock is expected to pay dividens as follows;
30 Sh 2.50
60 Sh 2.50
90 Sh 2.50
Required
i)Calculate the forward price of a contract established today and the expiring in 90 days
ii)After 60 days of entering the forward contract the stock price has hiked to ksh 145, calculate
the value of the forward contract at this poin
iii)At expiration point after 90 days the stock price is ksh 160, calculate the value of the forward
contract at expiration(15mks)