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What is the initial value of the forward contract

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A stock is expected to pay a dividend of $2 per share in two months and in $2 five months. The stock price is $60, and the risk-free rate of interest is 10% per annum with continuous compounding for all maturities. An investor has just taken a long position in a six-month forward contract on the stock, which matures in July.

a) What is the forward price and what is the initial value of the forward contract?

b) Three months later, the price of the stock is $55 and the risk-free rate of interest is still 10% per annum. What is the forward price of the contract maturing in July and what is the value of the long position in the forward contract?

Reference no: EM132774760

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