Question
an equity manager owns Cisco stock, which is currently trading at $30/share. He plans to sell the stock in 110 days to take advantage of
an equity manager owns Cisco stock, which is currently trading at $30/share. He plans to sell the stock in 110 days to take advantage of the lower capital gains tax for stocks held at least 1 year, but is concerned about a possible price decline in the interim. He decides to take a short position in a 110-day forward contract on the stock when the risk free rate is 3%. The stock will pay a $0.60 per share dividend in 40 days and another $0.60 in 130 days. What is the value of the contract in 45 days, assuming the stock is trading at $24 and the risk free rate is still 3%?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started