Question: 2. A four-months long forward contract on a stock is entered into when the stock price is $50 and the risk-free rate of interest is

2. A four-months long forward contract on a stock is entered

2. A four-months long forward contract on a stock is entered into when the stock price is $50 and the risk-free rate of interest is 10% per annum with continuous compounding. The stock pays out a dividend of $1 in 1 months, a dividend of $3 in in 3 months and a dividend of $8 in 8 months. (a) What are the forward price and the initial value of the forward contract? (b) Two months later, the price of the stock is $53 and the risk-free interest rate is still 10%. What are the forward price and the value of the forward contract? 2. A four-months long forward contract on a stock is entered into when the stock price is $50 and the risk-free rate of interest is 10% per annum with continuous compounding. The stock pays out a dividend of $1 in 1 months, a dividend of $3 in in 3 months and a dividend of $8 in 8 months. (a) What are the forward price and the initial value of the forward contract? (b) Two months later, the price of the stock is $53 and the risk-free interest rate is still 10%. What are the forward price and the value of the forward contract

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