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Consider a newly-originated 6-month forward contract (to deliver one unit of a stock). The stock, currently priced at $20, is expected to pay a $1
Consider a newly-originated 6-month forward contract (to deliver one unit of a stock). The stock, currently priced at $20, is expected to pay a $1 dividend in 3 months. The interest rate is 5%. [a] What invoice price should be stipulated on the contract so that its starting value is zero? [b] Suppose the interest rate went up to 6% while the stock price remained the same. Will this "fair" invoice price increase or decrease? Explain
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