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1. A stock is expected to pay a dividend of $3 per share in five months, in nine months, and in twelve months. The stock
- 1. A stock is expected to pay a dividend of $3 per share in five months, in nine months, and in twelve months. The stock price is $90, and the risk-free rate of interest is 5% per annum with continuous compounding for all maturities. An investor has just taken a long position in a ten-month forward contract on the stock.
- What are the forward price and the initial value of the forward contract?
- Six months later, the price of the stock is $76 and the risk-free rate of interest changed to 4% per annum. What are the forward price and the value of the long position in the forward contract?
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