Question: The Top-pay Corp's share is expected to pay a dividend of $1 per share in two months and in five months. Currently the stock price

The Top-pay Corp's share is expected to pay a dividend of $1 per share in two months and in five months. Currently the stock price is $50, and the risk-free interest rate is 8% per annum with continuous compounding for all maturities. An investor has just taken a short position in a six- month forward contract on this stock. a) What are the six-month forward price and the initial value of the forward contract? b) Three months later, the price of the stock is $48 and the risk-free rate of interest is still 8% per annum. What are the forward price and the value of the short position in the forward contract? (5 + 10 = 15 marks)

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