(a) A stock is expected to pay $2.50 dollars per share in two months, and again...

(a) A stock is expected to pay $2.50 dollars per share in two months, and again in five months. The stock price is $52.00 per share, and the risk-free rate is 5.3%. An investor has taken a short position in a six-month forward contract on the stock. What is the forward price? (b) What is the initial value of this forward contract? (c) Four months later the stock price is $47.00, and the risk-free rate is still 5.3%. What is the two-month forward price on the stock at this time? (d) What is the value of the investor's position in the original forward contract at the four month later date?

Solutions

Expert Solution

Given,

Dividend = $ 2.50

Stock price = $ 52

Period of forward contract = 6 months or 0.5 year

Solution :-

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

A stock is expected to pay a dividend of $1.25 per share in two months and...

A stock is expected to pay a dividend of $1.25 per share in two months and in five months. The stock price is $127, and the risk-free rate of interest is 5% p.a. with continuous compounding for all maturities. An investor has just taken a long position in a six-month forward contract on the stock. a) What are the forward price and the initial value of the forward contract? b) Three months later, the price of the stock is $135...

A stock is expected to pay a dividend of $0.80 per share in two months, in...

A stock is expected to pay a dividend of $0.80 per share in two months, in five months and in eight months. The stock price is $35, and the risk-free rate of interest is 8% per annum with continuous compounding for all maturities. You have just taken a long position in a nine-month forward contract on the stock. Seven months later, the price of the stock has become $38 and the risk-free rate of interest is still 8% per annum....

A stock is expected to pay a dividend of $1 per share in two months and...

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 What are the forward price and the initial value of the forward contract? Three months later, the price of the stock is $48...

A stock is expected to pay a dividend of $1.50 per share in three months and...

A stock is expected to pay a dividend of $1.50 per share in three months and in six months. The stock price is $60, 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 nine-month forward contract on the stock. What are the forward price and the initial value of the forward contract? Three months later, the price of the stock is $55 and...

A stock is expected to pay a dividend of $2 per share in three months. The...

A stock is expected to pay a dividend of $2 per share in three months. The share price is $75, and the risk-free rate of interest is 8% per annum with continuous compounding for all maturities. An investor has just taken a long position in a six-month forward contract on a share of stock. a) What are the forward price and the initial value of the forward contract? b) Three months later, immediately after the payment of the dividend, the...

A stock is expected to pay a dividend of €2 per share in 9 months. The...

A stock is expected to pay a dividend of €2 per share in 9 months. The stock price is €20, and the risk-free rate of interest is 5% per annum with continuous compounding for all maturities. An investor has just taken a long position in a 12-month forward contract on the stock. What is the Forward price (K)?

A stock is expected to pay a dividend of $1.5 per share in three months and...

A stock is expected to pay a dividend of $1.5 per share in three months and in six months. The stock price is $80, and the risk-free rate of interest is 5% per annum with continuous compounding for all maturities. An investor has just taken a long position in a eight-month forward contract on the stock. (a) What are the forward price and the initial value of the forward contract? (b) Four months later, the price of the stock is...

(A) ATX stock is expected to pay dividend of AUD 1 per share in three months...

(A) ATX stock is expected to pay dividend of AUD 1 per share in three months and AUD 1.50 per share in five months. The ATX stock price is AUD 55 and the risk-free interest is 8% per annum with continuous compounding for all maturities and Mr. Brown has taken a short position in a six-month forward contract. (i) What is the initial value of the forward contract? (ii) What is the forward price of this forward contract (B) Three...

A stock is expected to pay a dividend of $0.50 per share in two month, in...

A stock is expected to pay a dividend of $0.50 per share in two month, in five months and in eight months. The stock price is $20, and the risk-free rate of interest is 5% per annum with continuous compounding for all maturities. You have just taken a short position in a nine-month forward contract on the stock. Seven months later, the price of the stock has become $23 and the risk-free rate of interest is still 5% per annum....

A stock is expected to pay a dividend of $0.50 per share in two month, in...

Subjects