Exercise 3. A short forward contract on a dividend-paying stock was entered some time ago. It currently has 9 months to
Posted: Sun Apr 17, 2022 6:20 pm
Exercise 3. A short forward contract on a
dividend-paying stock was entered some time ago. It currently has 9
months to maturity. The stock price and the delivery price is $25
and $24 respectively. The risk-free interest rate with continuous
compounding is 8% per annum. The underlying stock is expected to
pay a dividend of $2 per share in 2 months and an another dividend
of $2 in 6 months.
a) What is the value of this forward contract? What is
the delivery price?
(b) One month later, the price of the stock is $28 and
the risk-free rate of interest is 9% per annum. What are the
forward price and the value of this short position in the forward
contract?
dividend-paying stock was entered some time ago. It currently has 9
months to maturity. The stock price and the delivery price is $25
and $24 respectively. The risk-free interest rate with continuous
compounding is 8% per annum. The underlying stock is expected to
pay a dividend of $2 per share in 2 months and an another dividend
of $2 in 6 months.
a) What is the value of this forward contract? What is
the delivery price?
(b) One month later, the price of the stock is $28 and
the risk-free rate of interest is 9% per annum. What are the
forward price and the value of this short position in the forward
contract?