A one year long forward contract of a non-dividend paying stock is entered into when the stock price is Rs. 50 and the risk free rate of interest is 8% per annum, with contin- uous compounding. You are required to calculate the Forward price and Initial value of the forward con- tract, if the price of the stock moves to Rs. 60 after six months while the risk free interest remains the same.
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Akash M.
A 1-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $$\$ 40$$ and the risk-free rate of interest is $10 \%$ per annum with continuous compounding. (a) What are the forward price and the initial value of the forward contract? (b) Six months later, the price of the stock is $$\$ 45$$ and the risk-free interest rate is still $10 \%$. What are the forward price and the value of the forward contract?
A stock is expected to pay a dividend of $0.75 per share in 1 month, in 4 months, in 7 months, in 10 months, etc. The current stock price is $98.50 and the risk-free rate of interest is 6% per annum with continuous compounding for all maturities. Today you entered into a short position in ten 9-month forward contracts on the stock. (a) What is the forward price, and what is the value of your position (ten short forward contracts) today? (b) Assume that six months later the price of the stock is $100.10 and the risk-free rate is the same as before. What will the forward price be, and what will the value of your position (ten short forward contracts) be?
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