Assume that you own a dividend-paying stock currently worth $150. You plan to sell the stock in 250 days. In order to hedge against a possible price decline, you wish to take a short position in a forward contract that expires in 250 days. The risk-free rate is 5.25% per annum (discretely compounding). Over the next 250 days, the stock will pay dividends according to the following schedule:

Days to Next Dividend	Dividends per Share ($)
30	1.25
120	1.25
210	1.25

(a) Calculate the forward price of a contract established today and expiring in 250 days.

(b) It is now 100 days since you entered the forward contract. The stock price is $115. Calculate the value of the forward contract at this point.

Answer rating: 100% (QA)

a Forward Contract Value F Stock Price Stock Price S Dividend DRisk free rateNo ... View the full answer