A stock S with price at time t pays no dividends. If you own shares of S, suppose that you can

make some extra money by lending them to someone with the agreement that when they return

the shares to you they will pay you b% of the final price as a fee for the loan.   In addition the company will pay a preannounced cash dividend of D dollars per share at time T to anyone who owns the share at time t. How do you show that the value of the forward price at time t is?

 

((1+r)/(1+b))∗St−(D/(1+b))

Answer rating: 100% (QA)

To calculate the forward price at time t we need to consider the current price of the stock S the ri... View the full answer