Answer Happy

QUESTION 3
This is a problem that
has FOUR questions. Therefore, please choose
FOUR answers (one choice for each question) to get
full credit for this questions, otherwise you will only get
partial points.
A stock is expected to pay a dividend of $1.50 per
share in three months and in six months. The stock price is
currently $45 and the risk-free rate is 6% per
annum with continuous compounding for all maturities. An
investor has just taken a short position in seven-month forward
contract on the stock.
#1) What is the forward price for no arbitrage
opportunity?
#2) What is the initial value of the forward
contract?
4 months later. Now, the price of the stock
is $50 and the risk-free rate is still 6% per annum
with continuous compounding.
#3) What is the new forward price for no arbitrage
opportunity?
#4) and what is the value of the short position in the
forward contract?
#1) forward price initially = $44.55
#1) forward price initially = $43.57
#1) forward price initially = $46.52
#2) initial value of the contract = $0
#2) initial value of the contract = cannot
determine without further information
#2) initial value of the contract = -$1.52
#3) forward price 4 months
later = $52.21
#3) forward price 4 months
later = $48.85
#3) forward price 4 months
later = $49.25
#3) forward price 4 months
later = $50.75
#4) value of the short forward contract 4 months later = $0
#4) value of the short forward contract 4 months later =
-$5.60
#4) value of the short forward contract 4 months
later = $5.60
#4) value of the short forward contract 4 months
later = cannot determine without further information