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Risk-free rate of interest

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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. a) What arethe forward price and the initial value of the forward contract? b)Three months later, the price of the stock is $48 and the risk-free rate of interest is still 8% per annum. What are the forward priceand the value of the short position in the forward contract? Explain.

Reference no: EM131180569

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