A long forward contract on a dividend-paying stock was entered into some time ago. It currently has 6 months to maturity. The risk-free rate of interest (with continuous compounding) is 7% per annum, the stock price is 65 dirhams and the delivery price is 60 dirhams. The average dividend rate is 2%. (a) Determine the value of this long forward contract. (b) Determine also the value of the short forward contract in this casa. (e) What can be said about the relationship between these two values?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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A long forward contract on a dividend-paying stock was entered into some time ago. It currently has 6 months to maturity. The risk-free rate of interest (with continuous compounding) is 7% per annum, the stock
price is 65 dirhams and the delivery price is 60 dirhams. The average dividend rate is 2%. (a) Determine the value of this long forward contract. (b) Determine also the value of the short forward contract in this casa. (e)
What can be said about the relationship between these two values?
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