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The Top-pay Corps share is expected to pay a dividend of $1 per share in two months and in five months. Currently the stock price
- The Top-pay Corps share is expected to pay a dividend of $1 per share in two months and in five months. Currently the stock price is $50, and the risk-free rate of interest is 8% per annum with continuous compounding for all maturities. An investor has just taken a short position in a six-month forward contract on this stock.
- What are the six-month forward price and the initial value of the forward contract?
- Three months later, the price of the stock is $48 and the risk-free rate of interest is still 8% per annum. What are the forward price and the value of the short position in the forward contract?
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Corporate Finance A Focused Approach
Authors: Michael C. Ehrhardt, Eugene F. Brigham
8th Edition
0357714636, 9780357714638
