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A stock is expected to pay a dividend of $2 per share in two months and in five months. The stock price is $40 and

A stock is expected to pay a dividend of $2 per share in two months and in five months. The stock price is $40 and the risk-free rate of interest is 8% per annum with continuous compounding for all maturities. An investor has just taken a short position in a six-month forward contract on the stock.

What are the forward price and the initial value of the forward contract?

FORWARD PRICE = $37.57

INITIAL VALUE = $0

FORWARD PRICE = $77.57

INITIAL VALUE = NOT IDENTIFIABLE

FORWARD PRICE = $77.57

INITIAL VALUE = -$0.25

FORWARD PRICE = $37.57

INITIAL VALUE = NOT IDENTIFIABLE

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