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  3. you anticipate the receipt of money in 190 days, w

You anticipate the receipt of money in 190 days, which you will use to purchase...

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Finance

You anticipate the receipt of money in 190 days, which you will use to purchase stocks in a particular company. The stock is currently selling for $61 and will pay a $0.5 dividend in 50 days and another $0.6 in 140 days. The risk-free rate is 2% (with continuous compounding) for all maturities. You plan to enter a long position in a forward contract on the stock.

Part 1 - At what price would you be willing to buy the stock in 190 days through a forward contract?

Part 2 - Suppose you agree to the contract at the price you found in the previous part. 110 days later, the stock has fallen to $53.15. What is the forward price at this point?

Part 3 - What is the value of the forward contract at this point (after 110 days)? Hint: Because the stock pays dividends, the value of the forward contract must reflect the value of the dividends that the stock pays out until delivery.

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