# Question: Suppose XYZ stock pays no dividends and has a current

Suppose XYZ stock pays no dividends and has a current price of $50. The forward price for delivery in 1 year is $55. Suppose the 1-year effective annual interest rate is 10%.

a. Graph the payoff and profit diagrams for a forward contract on XYZ stock with a forward price of $55.

b. Is there any advantage to investing in the stock or the forward contract? Why?

c. Suppose XYZ paid a dividend of $2 per year and everything else stayed the same. Now is there any advantage to investing in the stock or the forward contract? Why?

a. Graph the payoff and profit diagrams for a forward contract on XYZ stock with a forward price of $55.

b. Is there any advantage to investing in the stock or the forward contract? Why?

c. Suppose XYZ paid a dividend of $2 per year and everything else stayed the same. Now is there any advantage to investing in the stock or the forward contract? Why?

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