Financial assets usually cost nothing to store, however, the very purpose of e.g. shares to pay dividends. If you lend a share, the dividend goes to the holder of the share at the time of the dividend, and of course the owner of the share wants to be compensated for this. Assume that shares in the company AB cost SEK 875.00 on the spot market today and that the share is also traded on a semester in 1 year. The forward price is calculated according to an annual interest rate of 2.16%. Furthermore, the company is planning a share dividend of SEK 27.65 per share in 1 year just before the forward contract enters into force. What should the forward price of the share be in one year if there are no opportunities for arbitrage gains? The cost of the actual storage when borrowing the share is equal to zero, but the owner is compensated for his missing share dividend. Round your answer to two decimal places, is your answer e.g. 7.2623 answer in that case 7.26.

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To find the forward price of the share in one year we need to ... View the full answer