:) As of January 1, the price of a stock is $155. A dividend payment of...

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:) As of January 1, the price of a stock is $155. A dividend payment of $5 is made on each of March 1, August 1, and December 1. Let the risk-free continuously compounded interest rate be 6.5%. Kate believes the price of the stock is going to increase, and, therefore, she takes a long position in a one-year forward contract on the stock. a) Find the forward price of the stock for delivery in one year: $ b) On June 1, the stock price has risen to $235. What is the current fair value of the forward contract initiated on January 1? $ c) On June 1, Kate feels that now is the time to cash out. Explain how she can use a second forward contract (issued on June 1) to lock in a risk-free profit. On June 1, Kate should enter a forward contract with a delivery price of $ The risk-free profit realized on January 1 next year is ! d) In fact, Kate did not enter a second forward on June 1. On September 1, the stock price has fallen to $125. She is now concerned that the stock price would keep falling. Explain how she can use a second forward contract (issued on September 1) to lock in her loss. On September 1, Kate should enter a The loss realized on January 1 next year is $ forward contract with a delivery price of $ Note: Round any dollar values to the closest cent at every intermediate step. :) As of January 1, the price of a stock is $155. A dividend payment of $5 is made on each of March 1, August 1, and December 1. Let the risk-free continuously compounded interest rate be 6.5%. Kate believes the price of the stock is going to increase, and, therefore, she takes a long position in a one-year forward contract on the stock. a) Find the forward price of the stock for delivery in one year: $ b) On June 1, the stock price has risen to $235. What is the current fair value of the forward contract initiated on January 1? $ c) On June 1, Kate feels that now is the time to cash out. Explain how she can use a second forward contract (issued on June 1) to lock in a risk-free profit. On June 1, Kate should enter a forward contract with a delivery price of $ The risk-free profit realized on January 1 next year is ! d) In fact, Kate did not enter a second forward on June 1. On September 1, the stock price has fallen to $125. She is now concerned that the stock price would keep falling. Explain how she can use a second forward contract (issued on September 1) to lock in her loss. On September 1, Kate should enter a The loss realized on January 1 next year is $ forward contract with a delivery price of $ Note: Round any dollar values to the closest cent at every intermediate step.

Answer rating: 100% (QA)

a To find the forward price of the stock for delivery in one year we need to consider the present value of the future dividend payments The stock pric... View the full answer