1. Methods of Buying an Asset

2. How to Buy a Share of Stock Outright purchase –Pay S 0 at t = 0; receive stock at t = 0 Borrow to pay for stock –Pay S 0 e rT at t = T; receive stock at t = 0 Prepaid forward –Pay F 0,T P at t = 0; receive stock at t = T Forward –Pay F 0,T at t = T; receive stock at t = T

3. How to Buy a Share of Stock (cont.) Note: –For non-div-paying asset: F 0,T P = S 0 –For contin div yield: F 0,T P = S 0 e -  T –For non-div-paying asset: F 0,T = S 0 e rT –For contin div yield: F 0,T = S 0 e (r-  )T Cash-and-carry –Long asset + short forward Reverse cash-and-carry –Short asset + long forward

4. Q: Four Ways to Buy Stock (From Exam FM Fin Econ Sample Questions)