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Calculate the forward price and value of forward contract

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An investor has just taken a short position in a 6-month forward contract on a dividend paying stock. The stock is currently priced at $60 and is expected to pay a dividend of $1.5 per share in 2 months and in 5 months. Assuming the term structure of interest rates is flat and a continuously compounded risk-free rate of interest is 8% per annum for all maturities, you are required to:

Prpblem 1: Calculate the forward price and the value of the forward contract in three months, assuming that the price of the stock drops to $58 and the continuously compounded risk-free rate of interest increases to 9% per annum.

Reference no: EM133004538

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