Question
. RGF stock is expected to pay a dividend of AUD 1.50 per share in two months, five months and eight months. RGF stock price
. RGF stock is expected to pay a dividend of AUD 1.50 per share in two months, five months and eight months. RGF stock price is AUD 60 and the risk-free rate of interest is 2.5% per annum with continuous compounding for all maturities. An investor has just taken a short position in a nine-month forward contract on the RGF stock. (09 Marks)
a) What is the initial value of the forward contract? (01 Mark)
b) What is the forward price of the contract? (04 Marks)
c) Three months later, if the price of the RGF stock is AUD 58 and the risk-free rate of interest is still 2.5% per annum. What is the forward price and the value of the short position in the forward contract? (04 Marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started