Transcript Enterprise Risk Management

Methods
of
Buying
an
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,TP = S0
For contin div yield: F0,TP = S0•e-dT
For non-div-paying asset: F0,T = S0•erT
For contin div yield: F0,T = S0•e(r-d)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)