Hi, Just want to double check answers for my homework assignment. Questions are

Question

Hi, Just want to double check answers for my homework assignment. Questions are as follow, any associated work/math would be appreciated!

1) A $60 stock pays a $1.50 dividend quarterly. The stock just paid a dividend yesterday, so the first dividend comes exactly 3 months from today. Additional dividends are paid every three months thereafter. The risk free rate is 4%. What is the theoretical forward price for delivery of the stock in 1 year (to two digits accuracy)?

2) Presume that you went long the forward contract outlined in question 1. Suppose that at the end of six months, the stock price is $65 and the riskfree rate is still 4%. What is the value of the long forward contract (again, to two digits)?

Explanation / Answer

1.

P.V of dividend =1.5/(1+.04*(1/4))+ 1.5/(1+.04*(2/4))+ 1.5/(1+.04*(3/4))+ 1.5/(1+.04*(4/4))= 5.854355

Forward Price = (Spot- P.V of dividend)*(1+r)t

Forward Price = (60-5.854355)*(1+0.04)^1=56.31147

2.

At the end of 6 month P.V of dividend =1.5/(1+.04*(1/4))+ 1.5/(1+.04*(2/4)) =2.955737

Forward Price = (65-2.955737)*(1+0.04*(1/2)) = 63.28515

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