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A stock is expected to pay a dividend of $1 per share in 2 months and in 5 months. The stock price is $50, and
A stock is expected to pay a dividend of $1 per share in 2 months and in 5 months. The stock price is $50, and the risk-free rate of interest is 10% per annum with monthly compounding. An investor has just taken a short position in a six month forward contract on the stock. (a) What are the forward price and the initial value of a short position in the forward contract? (b) Three months later, the price of the stock is $48 and the risk-free rate of interest is still 10% per annum. What are the forward price and the value of the short position in the forward contract
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