Question
An investor enters a 4-month long forward contract on P&G. The stock is currently trading at $200 and the continuously compounded interest rate is 5%.
An investor enters a 4-month long forward contract on P&G. The stock is currently trading at $200 and the continuously compounded interest rate is 5%. P&G will pay a per share dividend of $1.5 in 3 months. a) (2 points) What is the fair forward price today? b) (2 points) After 2 months, the share price of P&G drops to $185. What is the current value of the forward contract to the investor? c) (2 points) When the forward contract expires, the share price of P&G changes to $195. What is the investor obligated to do? What is the dollar profit or loss to the investor?
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