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What are the forward price and the value of the contract

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Reference no: EM133018419

Question - A two-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $73 and the risk-free rate of interest is 5% per annum with continuous compounding.

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

b. Six months later, the price of the stock is $77.5 and the risk-free interest rate is still 5%. What are the forward price and the value of the contract?

c. If the stock pays a dividend of $3.5 twice a year (ie. Pay $3.5 every six months), what is the forward price?

Reference no: EM133018419

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