Question: Q4) A stock is expected to pay a dividend of $1 per share in 2 months and in 5 months. The stock price is $40,

Q4) A stock is expected to pay a dividend of $1

Q4) A stock is expected to pay a dividend of $1 per share in 2 months and in 5 months. The stock price is $40, and the risk-free rate of interest is 7% per annum with continuous compounding for all maturities. An investor has just taken a short position in a 6-month forward contract on the stock. (a) What are the forward price and the initial value of the forward contract? (b) Three months later, the price of the stock is $38 and the risk-free rate of interest is still 7% per annum. What are the forward price and the value of the short position in the forward contract

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