ANZ share price is $35. They are expected to pay a dividend of $2 per share...

ANZ share price is $35. They are expected to pay a dividend of $2 per share in 7
months’ time. The riskfree rate of interest is 6% per annum. Calculate the fair
forward price for the delivery of ANZ share in exactly 2 month.

Solutions

Expert Solution

Forward price = (Spot price - Present value of dividend) x e^{risk free rate x time}

Present value of dividend = Future value x e^{- rate x
time}

PV of Dividend = 2 x e ^{-
0.06 x ( 7/12)}

( since rate is per annum, 7 months will be 7/12 years)

PV = 1.931

Forward Price = (35 - 1.931) x e ^{0.06 x (2/12)}

Forward price = $33.40

ekkarill92 answered 2 years ago

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