A Trader Can Borrow Money at 6 Percent and Lend

question 19

Multiple Choice

A trader can borrow money at 6 percent and lend money at 5 percent,where the interest rates are continuously compounded annual rates.A brokerage commission of 0.5 percent of the stock price is charged today but the broker waives transactions costs on the maturity date.If BUG's stock price S is $50 today,then the seven-month forward price on BUG's stock should lie between:

• A) $51.22 and $52.04
• B) $51.47 and $51.78
• C) $51.22 and $52.54
• D) $51.22 and $51.47
• E) None of these answers are correct.

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Definitions:

Vivid

Producing clear, detailed, and intense images in the mind or being strikingly bright or intense in appearance or color.

Incorrect Manner

A way of acting or conducting oneself that is not appropriate or accurate according to a specific context or standards.

Problem-Solving View

An approach or perspective that sees cognitive development and learning as a process of overcoming obstacles and finding solutions.

Conservation of Energy

A principle stating that energy cannot be created or destroyed, but can be altered from one form to another.