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Ellen Corp. wants to buy GE stock in nine months. Right now, the GE stock is traded at $14.60. The related annual risk-free interest
Ellen Corp. wants to buy GE stock in nine months. Right now, the GE stock is traded at $14.60. The related annual risk-free interest rate is 4.55%. The stock is expected to pay a semi- annual dividend of $0.50 in five months and another $0.50 in eleven months. Without doing forward hedge, will an increase in the GE stock price benefit Ellen Corp. or not? Explain. Determine the forward price. Determine the forward value at initiation. Suppose two months later the GE stock is traded at $15.88. Determine the forward's value to Ellen Corp. Nine months after initiation the forward contract matures. How much will Ellen Corp. pay to the counter party? At maturity the GE stock is traded at $16.50 per share. What is Ellen Corp.'s profit?
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