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What are the forward price and the initial value

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Reference no: EM132611732

A stock is expected to pay a dividend of $1.5 per share in 3 months.

The stock price is $120, and the risk-free rate of interest is 9% per annum with continuous compounding for all maturities. An investor has just taken a short position in a 6-month forward contact on the stock.

(a) What are the forward price and the initial value of the forward contract?

(b) Four months later, the price of the stock is $105 and the risk-free rate of interest drops to 7% per annum. What are the forward price and the value of the short position in the forward contract?

Reference no: EM132611732

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