Forwards and Futures

Question 1

Outright Purchase

Answer 1

Price: S0, Payment and item are received at time 0

Question 2

Fully Leverage Purchase or Deferred Purchase

Answer 2

Price S0 * interest; Payment at time T and item at time 0

Question 3

Prepaid Forward Contract

Answer 3

Price Accumulated value of F(t) -> Pay at time 0, but receive item at time T

Question 4

Forward Contract

Answer 4

Price F(t) -> pay and receive item at time T

Question 5

Cost of Carry

Answer 5

Costs incurred as a result of an investment position. These costs can include financial costs, such as the interest costs on bonds, interest expenses on margin accounts and interest on loans used to purchase a security, and economic costs, such as the opportunity costs associated with taking the initial position.

Question 6

Dividend Discount Model

Answer 6

Used to value stocks.

Formula is

Dividend / (Discount Rate - Dividend Growth Rate)

Question 7

Future Value of a Contract

Answer 7

AV (Stock) - AV (Dividends)

Question 8

Future Value of a Contract (exponential)

Answer 8

Original Amount * e ^ (i - dividend rate) * t