The current price of a non-dividend paying stock is $50. There is a 3-month forward contract on

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The current price of a non-dividend paying stock is $50. There is a 3-month forward contract on the stock available. A risk free 3-month zero coupon bond with current price of $50 is also available. The continuously compounded risk-free rate is 2%. There is no arbitrage. Use this forward contract and this bond to construct a replicating portfolio for a position of buying this stock today and selling it in 3 months. Find out the forward price. Show the payoff of your replicating portfolio in 3 months, and current cost of your replicating portfolio.

Posted Date: Nov 11, 2021 07:52 PM

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The current price of a non-dividend paying stock is $50. There is a 3-month forward contract on

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