Question: Question 2 (Total 20 marks) A stock is expected to pay a dividend of $1.5 per share in one month and $2.0 in four months.

Question 2 (Total 20 marks) A stock is expected to pay

Question 2 (Total 20 marks) A stock is expected to pay a dividend of $1.5 per share in one month and $2.0 in four months. The stock price is $80 now, and the risk-free rate of interest is 6% per annum with continuous compounding for all maturities. An investor has just taken a long position in a six-month forward contract on the stock. a) What is the forward price fixed in the forward contract? b) Two months later, the price of the stock is $85 and the risk-free rate of interest is still 6% per annum for all maturities. What are the forward price and the value of the long position in the forward contract

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