Computation of forward price of a dividend security

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Reference no: EM13826191

Problem:

For the following questions assume the risk free rate of return is 2.50%. Your company imports large quantities of oil. On January 1st 2011 the spot price of oil is $70. You are concerned that recent events will drive the price of oil higher in 90 days time when you will need to purchase a large quantity. Under these circumstances calculate the price of a forward contract. In 90 days time the spot price of oil is $125; calculate the profit or loss of your forward position. What is the 10 month forward price of a dividend security based on the following information:

Current price

$110.00

Quarterly dividend

$1.00

Dividend payment dates:

3M, 6M, 9M

Additional Information:

This question is basically belongs to the Finance as well as it discusses about computation of forward price of a dividend security. The calculation has been given in the solution.

Reference no: EM13826191

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