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...