What are the forward price and the initial value

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A stock is expected to pay a dividend of $1 per share in 2 months. The stock price is $50, and the risk-free rate of interest is 5% per annum with continuous compounding for all maturities. An investor has just taken a short position in a 4-month forward contact on the stock.

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

(b) Three months later, the price of the stock is $60 and the risk-free rate of interest increases to 7% per annum. What are the forward price and the value of the short position in the forward contract?

Reference no: EM132611777

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