Suppose that s0 100 and that the annual rate of interest, Ask an Expert

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Suppose that S(0) = $100 and that the annual rate of interest with continuous compounding is r = 8%. We also know that a dividend of $6 will be paid at times t = 1/2 and t = 3/2.

Consider a long forward position at time t = 0 for delivery at time T = 2 years.

(a) Compute the total present value at time 0 of all of the dividend payments.

(b) What is the value of the long forward position at time 0. (c) What is the forward price at time 0.

(d) Suppose the stock price at time 1 is $105. Compute the value of the long forward position at time 1.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92855701

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