A stock is trading at $24.50. The market consensus expectation is that it will pay a dividend of $0.50 in two months’ time. No other payouts are expected on the stock over the next three months. Assume interest rates are constant at 6% for all maturities. You enter into a long position to buy 10,000 shares of stock in three months’ time. 

(a) What is the arbitrage-free price of the three-month forward contract? 

(b) After one month, the stock is trading at $23.50. What is the marked-to-market value of your contract? 

(c) Now suppose that at this point, the company unexpectedly announces that dividends will be $1.00 per share due to larger-than-expected earnings. Buoyed by the good news, the share price jumps up to $24.50. What is now the marked-to-market value of your position?