methods of buying an asset. how to buy a share of stock outright purchase –pay s 0 at t = 0;...
TRANSCRIPT
Methodsof
Buyingan
Asset
How to Buy a Share of Stock
• Outright purchase– Pay S0 at t = 0; receive stock at t = 0
• Borrow to pay for stock– Pay S0•erT at t = T; receive stock at t = 0
• Prepaid forward– Pay F0,TP at t = 0; receive stock at t = T
• Forward– Pay F0,T at t = T; receive stock at t = T
How to Buy a Share of Stock (cont.)
• Note:– For non-div-paying asset: F0,T
P = S0
– For contin div yield: F0,TP = S0•e-T
– For non-div-paying asset: F0,T = S0•erT
– For contin div yield: F0,T = S0•e(r-)T
• Cash-and-carry– Long asset + short forward
• Reverse cash-and-carry– Short asset + long forward
Q: Four Ways to Buy Stock (From Exam FM Fin Econ Sample Questions)
Q: Four Ways to Buy Stock (From Exam FM Fin Econ Sample Questions)