Jane is a portfolio manager for ABC Capital. She forecasts that the common stock of XYZ Corp, which ABC holds, and which is now priced at $60, will most probably fall in the near future and plans to sell it in 150 days. Two dividend payments of $1.50/share each are expected on XYZ stock, one in 30 days and one in 120 days. The risk free rate is 4% on a continuous compounding basis.

Use the above information to answer questions.

1. Jane could hedge against a possible price decline in the stock price in 150 days by:

a) Selling a forward contract on the stock with 120 days to the delivery date

b) Selling a forward contract on the stock with 150 days to the delivery date

c) Buying a forward contract on the stock with 150 days to the delivery date

2. The forward price of a contract on XYZ stock which is established today and expires in 150 days is closest to

: a) $63.9992

b) $57.9697

c) $57.0000