An investor owns a dividend paying stock currently worth $100. He plans to sell it in 200 days. In order to avoid the price uncertainty, he takes a short position on a forward contract on the stock that expires in 200 days. The stock is expected to pay 3 dividends of $1 each in 30, 80, and 150 days. The risk free rate of return is 6%

#1a. The no arbitrage forward price for the contract is closest to

 

#1b. Assuming that 60 days into the forward contract the stock price is actually $105, the value of the investor's position is closest to a:

Answer rating: 100% (QA)

1a To calculate the noarbitrage forward price for the contract we need to consider the present value ... View the full answer