Three months ago, an investor entered into a six-month forward contract to sell a stock. The delivery
Question:
Three months ago, an investor entered into a six-month forward contract to sell a stock. The delivery price agreed to was $55. Today, the stock is trading at $45. Suppose the three-month interest rate is 4.80% in continuously compounded terms.
(a) Assuming the stock is not expected to pay any dividends over the next three months, what is the current forward price of the stock?
(b) What is the value of the contract held by the investor?
(c) Suppose the stock is expected to pay a dividend of $2 in one month, and the one month rate of interest is 4.70%. What are the current forward price and the value of the contract held by the investor?
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a The current forward price is 45 exp0048 312 45543 ...View the full answer
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