MSFT currently trades at $105. It pays $0.5 dividend at the end of each quarter. Assume...

 

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MSFT currently trades at $105. It pays $0.5 dividend at the end of each quarter. Assume this is the beginning of a quarter so that the next payment will be exactly three months (1/4 year) from now. (a) Compute the forward price for MSFT at (i) 0.5-year maturity -), (ii) 1-year maturity (b) Compute the present value of 2 long 1-year forward contracts (100 shares per contract) on MSFT with a delivery price of (i) $80 -), (ii) $100 (- -), (iii) $120 (- -). (c) Compute the terminal payoff of 3 long 1-year forward contracts on MSFT with a delivery price of $105 if the stock price one year later (at expiry) is (i) $70 (- -), (ii) $100 -), (iii) $130 ( MSFT currently trades at $105. It pays $0.5 dividend at the end of each quarter. Assume this is the beginning of a quarter so that the next payment will be exactly three months (1/4 year) from now. (a) Compute the forward price for MSFT at (i) 0.5-year maturity -), (ii) 1-year maturity (b) Compute the present value of 2 long 1-year forward contracts (100 shares per contract) on MSFT with a delivery price of (i) $80 -), (ii) $100 (- -), (iii) $120 (- -). (c) Compute the terminal payoff of 3 long 1-year forward contracts on MSFT with a delivery price of $105 if the stock price one year later (at expiry) is (i) $70 (- -), (ii) $100 -), (iii) $130 (

Answer rating: 100% (QA)

To compute the forward price we need to consider the present value of the dividends and adjust the current stock price accordingly Lets calculate the forward prices for MSFT at different maturities a ... View the full answer