A $50 stock pays a $1 dividend every 3 months, with the first dividend coming 3 months
Question:
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?
DividendA dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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a The owner of the stock is entitled to receive di...View the full answer
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