Business, 11.11.2020 18:00 ParkBecca

A stock is expected to pay a dividend of $1 per share in 2 months and in 5 months. The current stock price is $50, and the continuous compounded risk free interest rate is 8% per annum. An investor has just taken a short position in a 6-month forward contract on the stock. Required:
a. What is the arbitrage free price of the forward contract?
b. What are the forward price and the initial value of the forward contract?
c. Three months later, the price of the stock is $48 and the risk-free rate of interest is still 8% per annum. What are the forward price and the value of the short position in the forward contract?

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A stock is expected to pay a dividend of $1 per share in 2 months and in 5 months. The current stock...

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