Dr. Sato makes a fully leveraged purchase on a share of stock today at time t = 0. You are given: The time t = 0 price of a share of the stock is 50. The stock pays a discrete dividend of 1.50 in six months. The continuously compounded annual risk-free interest rate is 2%. The broker's commission is 0.2% on each and every transaction. Continuously compounded interest should be used in all computations for this problem.

Question

Business

Ace Blackburn

24 January, 07:33

Dr. Sato makes a fully leveraged purchase on a share of stock today at time t = 0. You are given: The time t = 0 price of a share of the stock is 50. The stock pays a discrete dividend of 1.50 in six months. The continuously compounded annual risk-free interest rate is 2%. The broker's commission is 0.2% on each and every transaction. Continuously compounded interest should be used in all computations for this problem.

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Answers (1)

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Hannah · Answer 1

FV = 51

Explanation:

Base on the scenario been described in the question, we can use compound interest to compute the give problem

The formula for compound interest is given as follows

FV = PV x e (i x t),

We are given the following values

PV = 50

t = 0

I = 2%

Substituting the values into the equation

FV = 50 * exponential 0.2*0

FV = 51

As our answer.