The current price of a stock is 200, and the continuously compounded risk-free interest rate is 4%.
Question:
The current price of a stock is 200, and the continuously compounded risk-free interest rate is 4%. A dividend will be paid every quarter for the next 3 years, with the first dividend occurring 3 months from now. The amount of the first dividend is 1.50, but each subsequent dividend will be 1% higher than the one previously paid. Calculate the fair price of a 3-year forward contract on this stock.
(A) 200
(B) 205
(C) 210
(D) 215
(E) 220
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B By the first formula in 23...View the full answer
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