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Calculate the forward price of a contract established

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Reference no: EM132620267

Assume that you own a dividend-paying stock currently worth $180. You plan to sell the stock in 240 days. In order to hedge against a possible price decline, you wish to take a short position in a forward contract that expires in 240 days. The risk-free rate is 4.25 percent. Over the next 240 days, the stock will pay dividends according to the following schedule:

Days to Next Dividend Dividends per Share ($)

30 1.5

120 1.5

210 1.5

a) Calculate the forward price of a contract established today and expiring in 240 days.

b) It is now 100 days since you entered the forward contract. The stock price is $145. Calculate the value of the forward contract at this point.

c) At expiration, the price of the stock is $130. Calculate the value of the forward contract at expiration.

Reference no: EM132620267

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