Question
A stock is expected to pay a dividend of $2 per share in three months. The share price is $75, and the risk-free rate of
A stock is expected to pay a dividend of $2 per share in three months. The share price is $75, and the risk-free rate of interest is 8% per annum with continuous compounding for all maturities. An investor has just taken a long position in a six-month forward contract on a share of stock.
Three months later, immediately after the payment of the dividend, the price of the stock is $90 and the risk-free rate of interest is still 8% per annum with continuous compounding. What are the forward price and the value of the long position in the forward contract taken three months before?
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