A stock is expected to pay a dividend of $2 per share in 6 months. The stock

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A stock is expected to pay a dividend of $2 per share in 6 months. The stock price is $80, and the risk-free rate of interest is 6% per annum with continuous compounding for all maturities. An investor has just taken a long position in a 10-month forward contact on the stock.

(a) What are the forward price and the initial value of the forward contract?

(b) Eight months later, the price of the stock is $90 and the risk-free rate of interest drops to 5% per annum. What are the forward price and the value of the long position in the forward contract?

Posted Date: May 18, 2024 08:02 PM

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A stock is expected to pay a dividend of $2 per share in 6 months. The stock

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