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A short forward contract on ABC stock that was negotiated some time ago will expire in six months and has a delivery price of $50. ABC stock has a

A short forward contract on ABC stock that was negotiated some time ago will expire in six months and has a delivery price of $50. ABC stock has a

Essentials Of Investments
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
Section: Chapter Questions
Problem 1PS
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A short forward contract on ABC stock that was negotiated some time ago will expire in six months and has a delivery price of $50. ABC stock has a market price of $52 and will pay a dividend of $2 in 4 months. The risk- free interest rate with continuous compounding is 5%. What is the value of the short forward contract? a. -$3.24 b. +$1.27 c. -$1.27
Transcribed Image Text:A short forward contract on ABC stock that was negotiated some time ago will expire in six months and has a delivery price of $50. ABC stock has a market price of $52 and will pay a dividend of $2 in 4 months. The risk- free interest rate with continuous compounding is 5%. What is the value of the short forward contract? a. -$3.24 b. +$1.27 c. -$1.27
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