Problem 4. New Residential Investment Corp. is expected to pay quarterly dividends in 2021. The first...

Transcribed Image Text:

Problem 4. New Residential Investment Corp. is expected to pay quarterly dividends in 2021. The first dividend of $0.2 has the Ex-Dividend date 01/15/2021, and the Payment date is 01/31/2021. Subsequent dividends increase by 5 cents each quarter. Assume that the next dividend payments will occur on the last day of the month. (a) Compute the forward price of New Residential Investment Corp. with maturity 12/31/2021, assuming that you've entered into the transaction on 1/25/2021. The closing price of the stock on 1/25/2021 is $9.82. (b) We will now assume that New Residential Investment Corp. pays dividends at a continuous rate 8. Using the forward price in (a) compute . Note: On the Ex-Dividend date the stock trades without the dividend value. The Payment date is the date on which a declared dividend is paid to eligible investors. To simplify computations, we will assume that a year has 360 days; 30 days per month. The risk-free continuously compounded interest rate is 2% per year. Problem 4. New Residential Investment Corp. is expected to pay quarterly dividends in 2021. The first dividend of $0.2 has the Ex-Dividend date 01/15/2021, and the Payment date is 01/31/2021. Subsequent dividends increase by 5 cents each quarter. Assume that the next dividend payments will occur on the last day of the month. (a) Compute the forward price of New Residential Investment Corp. with maturity 12/31/2021, assuming that you've entered into the transaction on 1/25/2021. The closing price of the stock on 1/25/2021 is $9.82. (b) We will now assume that New Residential Investment Corp. pays dividends at a continuous rate 8. Using the forward price in (a) compute . Note: On the Ex-Dividend date the stock trades without the dividend value. The Payment date is the date on which a declared dividend is paid to eligible investors. To simplify computations, we will assume that a year has 360 days; 30 days per month. The risk-free continuously compounded interest rate is 2% per year.