Financial DerivativesTU Board 2023
A stock is expected to pay a dividend of Rs 10 per share in 2 months and in 5 months. The stock price is Rs 500, and the risk free rate of interest is 8% per annum with continuous compounding for…
5A stock is expected to pay a dividend of Rs 10 per share in 2 months and in 5 months. The stock price is Rs 500, and the risk-free rate of interest is 8% per annum with continuous compounding for all maturities. An investor has just taken a short position in a 6-month forward contract on the stock. a. What are the forward price and the initial value of the forward contract? b. Three months later the price of stock is Rs 480 and risk-free rate of interest is still 8% per annum. What are the forward price and the value of short position in the forward contract?
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