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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Question
A stock is expected to pay a dividend of $1 per share in 2 months. An investor purchased a forward contract on the stock at a forward price of $50 some time ago. The contract now has 3 months to its delivery date. The stock is currently trading at $55 and the risk free rate is 4% on a continuously compounded basis. Consider the following statements.
I. The price of a forward contract on the stock with 3 months to the delivery date is $54.55
II. The value of the investor’s forward position is $5.50 Which of the following is correct? (No excel pls)
a. Statement I is incorrect, Statement II is correct.
b. Both statements are correct.
c. Both statements are incorrect.
d. Statement I is correct, Statement II is incorrect.
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