A short forward contract on a share of ABC stock that was negotiated some time...
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Accounting
A short forward contract on a share of ABC stock that was negotiated some time ago will expire in six months and has a delivery price of $50. The current spot price of the stock is $52.00. The stock is expected to pay a dividend of $3 in 3 months. The risk-free interest rate (with continuous compounding) is 5% for all maturities. Consider the following statements. I. The forward price of a forward contract on ABC stock with a time to delivery of six months should be close to $50.28. II. The value of the short forward position is closest to $0.27. Which of the following is correct?
a. Statement I is incorrect, Statement II is incorrect.
b. Statement I is incorrect, Statement II is correct.
c. Statement I is correct, Statement II is correct.
d. Statement I is correct, Statement II is incorrect.
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