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A 9-month short position of a forward contract on a stock is entered into today, when...

A 9-month short position of a forward contract on a stock is entered into today, when the stock price is $60. The stock has expected dividends of $1.0 in 2 months, $2.0 in 5 months, and $2.0 in 7 months respectively. The risk-free interest rate is 3.0% per annum with continuous compounding.

(a) What is the forward price today?
(b) What is the initial value of the forward contract today?

(c) 3 months later, the price of the stock decreases to $55 and the risk-free interest rate remains the same. What are the forward price and the value of the forward position then?


Question 3
A 9-month short position of a forward contract on a stock is entered into today, when the stock price is $60. The stock has expected dividends of $1.0 in 2 months, $2.0 in 5 months, and $2.0 in 7 months respectively. The risk-free interest rate is 3.0% per annum with continuous compounding.
(a) What is the forward price today?
(b) What is the initial value of the forward contract today?
(c) 3 months later, the price of the stock decreases to $55 and the risk-free interest rate remains the same. What are the forward price and the value of the forward position then?

（no more information.）

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Expert Solution

I hope my efforts will be fruitful to you...?

ekkarill92 answered 1 year ago
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