A stock is expected to pay a dividend of $1 per share in two months...
80.2K
Verified Solution
Link Copied!
Question
Accounting
A stock is expected to pay a dividend of $1 per share in two months and in five months. The stock price is $50, and the risk-free rate of interest 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 the stock. Required: a) What are the forward price and the initial value of the forward contract? (6 marks) b) Three months later, the price of the stock is $48 and the risk-free rate of interest is still 8% per annum. What is the forward price? (6 marks)
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
