A certain stock costs 40 today and will pay an annual dividend of 6 for the next
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A certain stock costs 40 today and will pay an annual dividend of 6 for the next 4 years. An investor wishes to purchase a 4-year prepaid forward contract for this stock. The first dividend will be paid one year from today and the last dividend will be paid just prior to delivery of the stock. Assume an annual effective interest rate of 5%.
Calculate the price of the prepaid forward contract.
(A) 12.85
(B) 13.16
(C) 17.29
(D) 18.72
(E) 21.28
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