Question 5: The Value of A Forward Contract (3/10) This question asks you to think about how the value of a forward contract on a dividend paying stock changes over time. Suppose that the continuous dividend yield of the stock of JKL is q = 3% per annum. At the beginning of January 2021, the stock is traded at $100. The continuously-compounded risk-free rate is rc = 6% per annum. = (1) You want to enter a long position of forward contract at the beginning of January 2021 with one month maturity. What's the implicit forward price for the contract? (2) At the beginning of July 2021, the price of one JKL share moves $150. What is the forward price of a forward contract with delivery date being the end of December, 2021? (This is a different contract.) (3) At the beginning of July 2021, how much would you like to pay for the forward contract that were initiated at the beginning of January 2021 in (1)? (4) What is the value of a short position in the forward contract from (1) if JKL stock price is $80 at the beginning of July 2021? Create a replication portfolio to justify your result. Question 5: The Value of A Forward Contract (3/10) This question asks you to think about how the value of a forward contract on a dividend paying stock changes over time. Suppose that the continuous dividend yield of the stock of JKL is q = 3% per annum. At the beginning of January 2021, the stock is traded at $100. The continuously-compounded risk-free rate is rc = 6% per annum. = (1) You want to enter a long position of forward contract at the beginning of January 2021 with one month maturity. What's the implicit forward price for the contract? (2) At the beginning of July 2021, the price of one JKL share moves $150. What is the forward price of a forward contract with delivery date being the end of December, 2021? (This is a different contract.) (3) At the beginning of July 2021, how much would you like to pay for the forward contract that were initiated at the beginning of January 2021 in (1)? (4) What is the value of a short position in the forward contract from (1) if JKL stock price is $80 at the beginning of July 2021? Create a replication portfolio to justify your result