A $44 stock pays a dividend of $0.90 every 6 months, with the first dividend com
ID: 2620603 • Letter: A
Question
A $44 stock pays a dividend of $0.90 every 6 months, with the first dividend coming 6 months from today. The continuously compounded risk-free rate is 10%. What is the price of a forward contract that expires 1 year from today, immediately after the second dividend? Answers: a. $48.63 b. $46.50 c. $42.33 d. $47.73 e. $46.78 A $44 stock pays a dividend of $0.90 every 6 months, with the first dividend coming 6 months from today. The continuously compounded risk-free rate is 10%. What is the price of a forward contract that expires 1 year from today, immediately after the second dividend? A $44 stock pays a dividend of $0.90 every 6 months, with the first dividend coming 6 months from today. The continuously compounded risk-free rate is 10%. What is the price of a forward contract that expires 1 year from today, immediately after the second dividend? a. $48.63 $48.63 b. $46.50 $46.50 c. $42.33 $42.33 d. $47.73 $47.73 e. $46.78 $46.78 A $44 stock pays a dividend of $0.90 every 6 months, with the first dividend coming 6 months from today. The continuously compounded risk-free rate is 10%. What is the price of a forward contract that expires 1 year from today, immediately after the second dividend? Answers: a. $48.63 b. $46.50 c. $42.33 d. $47.73 e. $46.78Explanation / Answer
Since all are continously compounded
Present value of all the dividends = 0.9 * e-10%* 6/12 + 0.9 * e- 10% = 1.6704
Forward price = ( Current price - Present value of Dividends) * ert = (44 -1.6704) * e 10% * 1 = 46.78
Option e correct option
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