Consider a 10-month forward contract on a stock when the stock price is GH¢60. Assume that the risk-free interest rate (continuously compounded) is 6% per annum for all maturities. Assume that dividends of GH¢0.95 per share are expected in 3 months, 6 months and 9 months. What is the forward price

Name: consider a 10 month forward contract on a stock when the stock price is gh60 assume that the risk free interest rate continuously compounded is 6 per annum for all maturities assume that dividends of
Uploaded: 2020-07-07
Duration: 59 s
Channel: Numerade
Description: Consider a 10-month forward contract on a stock when the stock price is GH¢60. Assume that the risk-free interest rate (continuously compounded) is 6% per annum for all maturities. Assume that dividends of GH¢0.95 per share are expected in 3 months, 6 months and 9 months. What is the forward price

Neel F.

McGill University

Answer

Find the effective rate of interest. For $6 \%$ compounded continuously

Precalculus 9th

Chapter 5

Exponential and Logarithmic Functions

Section 7

Financial Models

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Video Transcript

So in this question, we're asked to find the effective rate of interest on we're told that it is compounded continues. We know immediately they were going to use this equation. Where is a constant eyes to given interest rate on ours? Effective rate of interest, which is what we're trying to find. So, given I toe, 6% is your six. And so it could just put that in to our equation. Each part soup into six minus one. That would give us a final answer. You're 68 which is equal to 6.18%.

Neel F.

McGill University