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Suppose ABC stock pays no dividends and has a current price of $50. The forward price...

Suppose ABC stock pays no dividends and has a current price of $50. The forward price for delivery in 1 year is $55. Suppose the 1-year effective annual interest rate is 10%.

(a) Graph the payoff and profit diagrams for the one year forward contract.

(b) Is there any advantage to investing in the stock or the forward contract? Why?

(c) Suppose ABC paid a dividend of $2 per year and everything else stayed the same. Now is there any advantage to investing in the stock or the forward contract? Why?

*YOU MUST ANSWER WITH DETAILED WORKING!!

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jeff jeffy answered 1 year ago
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