We consider long forward contracts for one share of a stock. The price of this stock at time t is denoted by St . We write F0,T for the forward price of a forward contract entered into at time t = 0 with payment and delivery at time t = T. We denote the risk-free interest rate by r and the continuously compounded dividend rate for this stock by .

(a) Write down the theoretical formula for F0,T (in the absence of arbitrage) in terms of r, T, S0, and . It suffices to give the answer.

(b) Suppose that = 0.02, T = 1/2, S0 = 50, and F0,T = 50.76. Determine the numerical value of r. Express your answer as a percentage and use only two decimal places (this would be four decimal places if the %-sign were not used). Show your work.

(c) Under the same assumptions as in part (b) and using the value for r that you gave as your answer in (b), determine the numerical value of the prepaid forward contract FP0T , entered into and paid for at time t = 0 with delivery of the stock at time t = T. Use two decimal places in your answer. Show your work.