Question: A 50 stock pays a 1 dividend every 3 months

A $50 stock pays a $1 dividend every 3 months, with the first dividend coming 3 months from today. The continuously compounded risk-free rate is 6%.
a. What is the price of a prepaid forward contract that expires 1 year from today, immediately after the fourth-quarter dividend?
b. What is the price of a forward contract that expires at the same time?

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  • CreatedAugust 12, 2015
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