For t 0, let S(t) be the time-t price of Stock ABC. You are given: (i)
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For t ≥ 0, let S(t) be the time-t price of Stock ABC. You are given:
(i) S(0) = 100
(ii) At time 0.5, a cash dividend of $10 per share will be paid.
(iii) From time 0.75 to time 1, dividends are paid continuously at a rate proportional to its price. The dividend yield is 10%.
(iv) The continuously compounded risk-free interest rate is 8%.
Calculate the price of a one-year prepaid forward contract on stock ABC.
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