Question
(A) ATX stock is expected to pay dividend of AUD 1 per share in three months and AUD 1.50 per share in five months. The
(A) ATX stock is expected to pay dividend of AUD 1 per share in three months and AUD 1.50 per share in five months. The ATX stock price is AUD 55 and the risk-free interest is 8% per annum with continuous compounding for all maturities and Mr. Brown has taken a short position in a six-month forward contract.
(i) What is the initial value of the forward contract?
(ii) What is the forward price of this forward contract?
(B) Three months later, the price of the ATX stock is AUD 50 and the risk-free interest rate is still 8% per annum
(i) What is the value of the short position in the forward contract?
(ii) What is the forward price of this forward contract?
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Case Studies In Finance
Authors: Robert Bruner, Kenneth Eades, Michael Schill
6th Edition
0073382450, 978-0073382456
