A one-year long forward contract on a non-dividend-paying stock is entered into when the stock price is
Question:
A one-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $40 and the risk-free rate of interest is 5% per annum with continuous compounding.
a) What are the forward price and the initial value of the forward contract?
b) Six months later, the price of the stock is $45 and the risk-free interest rate is still 5%. What are the forward price and the value of the forward contract?
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Step by Step Answer:
a The forward price is given by equation 51 as F 0 40e 0051 4205 or ...View the full answer
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