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Quiz 3

This document provides the solution to a quiz question involving calculating the present value of dividends and the price of a bond. It discounts future dividends of $2 paid in 4 months at a 4% rate to get a present value. It then uses the present value, future value, time, and interest rate in the basic present value formula to solve for the price of a $50 bond maturing in 6 months. The calculated price is $2.59033.

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Uroona Malik
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14 views1 page

Quiz 3

This document provides the solution to a quiz question involving calculating the present value of dividends and the price of a bond. It discounts future dividends of $2 paid in 4 months at a 4% rate to get a present value. It then uses the present value, future value, time, and interest rate in the basic present value formula to solve for the price of a $50 bond maturing in 6 months. The calculated price is $2.59033.

Uploaded by

Uroona Malik
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Quiz 3

Solution :-
C(K ,T) - P(K ,T) = S0 – PV0,T(dividends) - K e –r T
6
For finding PV0,T(dividends) we discount 2 for 4 months at 4% or (2)e−0.04 × 12
6 6
1.62 - P(50,0.5) = 50 - (2)e−0.04 × 12 – 50 e−0.04 ( 12 )

1.62 - P(50,0.5) = 50 – 1.9603973 – 49.0099


1.62 - P(50,0.5) = - 0.97033
1.62 + 0.99661 = P(50,0.5)
P(50,0.5) = 2.59033

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