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(b) The following table gives the information of bonds A and B in a market today. Face value Maturity from today Price Bond A $100

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(b) The following table gives the information of bonds A and B in a market today. Face value Maturity from today Price Bond A $100 six months $97 Bond B $100 one year $93 A stock is selling for $100 today and will pay a dividend $20 in six months. Bob today enters into a forward contract to buy the stock in one year. Suppose three months later, the prices of the stock, bond A and bond B will change to $90, $98, $95, respectively, determine the value of the forward contract for Bob at that time. [5 marks] (b) The following table gives the information of bonds A and B in a market today. Face value Maturity from today Price Bond A $100 six months $97 Bond B $100 one year $93 A stock is selling for $100 today and will pay a dividend $20 in six months. Bob today enters into a forward contract to buy the stock in one year. Suppose three months later, the prices of the stock, bond A and bond B will change to $90, $98, $95, respectively, determine the value of the forward contract for Bob at that time. [5 marks]

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