A month ago,the price of an IBM stock was $110 and its volatility was 28%.Today,its price is still $110 but its volatility has gone up to 40%.If the one-month interest rate has not changed over the last month and IBM stock does not pay any dividends (i.e. ,there are no costs or benefits of carry,)then:
A)The one-month forward prices of IBM today equals the one-month forward price a month ago
B)The one-month forward price of IBM today is greater than the one-month forward prices a month ago by $10
C)The one-month forward prices of IBM today is lower than the one-month forward price a month ago by $10
D)The one-month forward price of IBM today is $44

Question

Quizplus · Accepted Answer

The one-month forward price of IBM is determined by the current stock price, the interest rate, and the expected future stock price. Since the stock price has remained the same, the only difference is the change in volatility. However, volatility does not affect the forward price of the stock. Therefore, the one-month forward prices of IBM today equals the one-month forward price a month ago.

A Month Ago,the Price of an IBM Stock Was $110