Question: Ex6 : A stock is expected to pay a dividend of $1 per share every quarter. The stock price is $50 and the risk free

Ex6:

A stock is expected to pay a dividend of $1 per share every quarter. The stock price is $50 and the risk free rate is 5% per annum. An investor has just taken a short position in a six-month forward contract on the stock.

a)What are the forward price and initial value of the forward contract assuming discrete compounding?

b)What are the forward price and initial value of the forward contract assuming continuous compounding?

c) Three months later, the price of the stock is $48. What is the value of the short position in the forward contract?

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