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An asset manager anticipates the receipt of funds in 200 days, which he will use to purchase a particular stock. The stock he has in mind is currently selling for $62.50 and will pay a $0.75 dividend in 50 days and another $0.75 dividend in 140 days.
The risk-free rate is 4.2 percent. The manager decides to commit to a future purchase of the stock by going long a forward contract on the stock.
A. At what price would the manager commit to purchase the stock in 200 days through a forward contract?
B. Suppose the manager enters into the contract at the price you found in Part A. Now, 75 days later, the stock price is $55.75. Determine the value of the forward contract at this point.
C. It is now the expiration day, and the stock price is $58.50. Determine the value of the forward contract at this time.
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