What the forward price and initial value of forward contract

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Q1. A stock is expected to pay a dividend of $1 per share in two months and in five months. The stock price is $56, and the risk-free rate (with continuous compounding) is 8% for all maturities. An investor has just taken a long position in a seven-month forward contract on the stock.

What are the forward price and the initial value of the forward contract?

Three months later, the price of the stock is $60 and the risk-free rate is still 8%. What are the forward price and the value of the forward contract?

Q2. A stock is expected to pay a dividend of $1 per share in two months and in five months. The stock price is $56, and the risk-free rate (with continuous compounding) is 8% for all maturities. An investor has just taken a short position in a seven-month forward contract on the stock.

What are the forward price and the initial value of the forward contract?

Three months later, the price of the stock is $50 and the risk-free rate is still 8%. What are the forward price and the value of the forward contract?

Reference no: EM132182410

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