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A stock is expected to pay a dividend of $1 per share in two months and...

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Finance

A stock is expected to pay a dividend of $1 per share in twomonths and in five months. The stock price is $50, and therisk-free rate of interest is 8% per annum with continuouscompounding for all maturities. An investor has just taken a shortposition in a six-month forward contract on the stock.
Required

  1. What are the forward price and the initial value of the forwardcontract?
  2. Three months later, the price of the stock is $48 and therisk-free rate of interest is still 8% per annum. What is theforward price and the value of the short position in the forwardcontract?

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A stock is expected to pay a dividend of $1 per share in twomonths and in five months. The stock price is $50, and therisk-free rate of interest is 8% per annum with continuouscompounding for all maturities. An investor has just taken a shortposition in a six-month forward contract on the stock.RequiredWhat are the forward price and the initial value of the forwardcontract?Three months later, the price of the stock is $48 and therisk-free rate of interest is still 8% per annum. What is theforward price and the value of the short position in the forwardcontract?

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