A 3-year forward contract on Mathcorp shares is to be issued. The current share price is...

 

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A 3-year forward contract on Mathcorp shares is to be issued. The current share price is 4.50 and the last dividend which was paid was 0.20. It is assumed that dividends will be paid every quarter year to shareholders and are increasing at a rate of 1% per quarter in the first two years and by 1.5% per quarter in the final year. Assuming a continuously compounded risk-free rate of 5% p.a., calculate the forward price. A 3-year forward contract on Mathcorp shares is to be issued. The current share price is 4.50 and the last dividend which was paid was 0.20. It is assumed that dividends will be paid every quarter year to shareholders and are increasing at a rate of 1% per quarter in the first two years and by 1.5% per quarter in the final year. Assuming a continuously compounded risk-free rate of 5% p.a., calculate the forward price.

Answer rating: 100% (QA)

First lets calculate the future dividends For the first two years Div... View the full answer