In Example 3.1 what is the value of the forward contract at 5 months if the stock
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In Example 3.1 what is the value of the forward contract at 5 months if the stock price at that time is $48?
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Example 3.1. What should be the price of an 8 month forward contract for 100 shares of a stock whose price today is $43.44? The company has already announced it will give a $0.77 per share dividend 3 and 6 months from now. The risk-free rate is 3%. Directly substituting into (3.5) we have Fr = (43 43.44 -0.77e-0.03+3/12 - 0.77e-0.03+6/12 0.03 (8/12) /12) €0.03 ( = (43.44 - 1.52)1.02 = 42.76 per share; so $4,276 for 100 shares. U
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