You have entered into a SHORT forward contract on a dividend-paying stock some time ago, and this will expire in 2 years. It has a delivery price of $40 and the current stock price is $45. It provides a fixed dividend yield of 5% with annual compounding. If the risk-free rate is 8% per annum with continuous compounding for all maturities, answer the following question:
1) What should be the (new) 2-year forward price for no arbitrage opportunity?
2) What is the value of this SHORT forward contract?
*use at least 6 decimal places
|1) (new) 2-YEAR FORWARD PRICE = 48.50|
|1) (new) 2-YEAR FORWARD PRICE = 47.90|
|1) (new) 2-YEAR FORWARD PRICE = 40.90|
|1) (new) 2-YEAR FORWARD PRICE = 45.50|
|2) VALUE OF THE SHORT FORWARD CONTRACT = -8.90|
|2) VALUE OF THE SHORT FORWARD CONTRACT = 8.90|
|2) VALUE OF THE SHORT FORWARD CONTRACT = -6.73|
|2) VALUE OF THE SHORT FORWARD CONTRACT = +6.73|
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