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Q-1 (20p)        A stock is announced to pay $1.20 per share in one month and...

Q-1 (20p)        A stock is announced to pay $1.20 per share in one month and in also expected to pay         $1.25 in 5 four months. The stock price is $90, and the risk-free rate of interest is 4% per annum          with continuous compounding for this problem. Suppose you just took a short position in a six-         month forward contract on the stock.

  1. What are the “Forward Price” and the initial value of the forward contract?

  1. Three months later, the price of the stock is $98 and the risk-free interest rate is still 4%.

What is the forward price at this point? And

What is the value of the short position in the forward contract you signed three months ago?                                  

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SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago
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