A $53 stock pays a $1 dividend every 3 months, with the first dividend coming 3 months from today. The annual continuously compounded risk-free rate is 6%. What is the price of a prepaid forward contract that expires 1 year from today, immediately after the fourth-quarter dividend? Question 1 options: $46.1467 $47.1467 $48.1467 $49.1467 $53
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Step 1
The present value of the four $1 dividend payments can be calculated using the formula for present value of a series of cash flows: PV = D * (1 - e^(-rt)) / r where: PV = present value D = dividend payment r = continuously compounded risk-free rate t = time Show more…
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