Q1a. Assuming that NFLX currently trades at $540 in the spot market. Investors can expect a dividend of $5 and $7.5 at the end of years one and two, respectively. Estimate the theoretical 1-year, 2-year, and 3-year forward price?

Assume that the risk-free rate is 3% with continuous compounding. [3 Marks]

b. What would be the 1-year, 2-year, and 3-year forward price, if the risk-free rate is 4% with semi-annual compounding? [3 Marks]

c. An investor enters into a forward rate agreement to receive interest at 9.5% per annum for a six month period. The agreed-upon principal is $100,000, and the interest payments will start in two years.

Calculate the value of FRA if the yield curve is 5% for all maturities. Assume that all rates are compounded semiannually?