What is the value of the forward contract

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Question: Consider a 12-month long forward contract on a stock currently priced at $90. The risk-free interest rate is 7% per annum, compounded continuously. Suppose that dividend payments of $8 per share are expected after 4 months and $7 after 8 months.

(a) Determine the forward price at time 0.

(b) What is the value of this forward contract 6 months from now if the stock price at that time is $95? (c) Suppose that the value of this forward contract 6 months from now is $5. Determine whether there is an arbitrage opportunity. If one exists in this situation, construct an arbitrage portfolio and find the profit realized.

Reference no: EM131773687

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