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What forward price should the contract stipulate

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Consider a 6-month forward contract (delivers one unit of the security) on a security that is expected to pay a .£ 2 dividend in three months. The term structure is ?at at 10%, and rates are quoted with annual compounding. The security price is if 25.

(a) What forward price should the contract stipulate, so that the current value of entering into the contract is zero?

(b) Suppose that the contract stipulates a forward price of £22. How much would you pay today to enter into this contract?

Reference no: EM133062436

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