A stock sells for $84 and pays a continuously compounded 3% dividend. The continuously compounded risk-free...

A stock sells for $84 and pays a continuously compounded 3% dividend. The continuously compounded risk-free rate is 5%.

a. What is the price of a pre-paid forward contract for one share to be delivered six months (.5 year) from today?

b. What is the price of a forward contract that expires six months from today?

c.Describe the transactions you would undertake to use the stock and bonds (borrowing and lending) to construct a synthetic long forward contract for one share of stock.

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Expert Solution

Colby Messinger answered 1 year ago

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