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Consider a stock which pays dividends continuously at a rate propor- tional to its price. The dividend yield is less than the interest rate, but both are positive and continuously compounded. Rank the following quantities in ascending order (i.e., from lowest to highest): (A) = Current stock price (B) = One-year forward price (C) = Two-year forward price (D) = Two-year prepaid forward price (E) = Expected stock price at the end of two years

Consider a stock which pays dividends continuously at a rate propor- tional to its price. The dividend yield is less than the interest rate, but both are positive and continuously compounded. Rank the following quantities in ascending order (i.e., from lowest to highest): (A) = Current stock price (B) = One-year forward price (C) = Two-year forward price (D) = Two-year prepaid forward price (E) = Expected stock price at the end of two years

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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* Consider a stock which pays dividends continuously at a rate propor- tional to its price. The dividend yield is less than the interest rate, but both are positive and continuously compounded. Rank the following quantities in ascending order (i.e., from lowest to highest): (A) = Current stock price (B) = One-year forward price Two-year forward price (C) (D) = Two-year prepaid forward price (E) = Expected stock price at the end of two years
Transcribed Image Text:* Consider a stock which pays dividends continuously at a rate propor- tional to its price. The dividend yield is less than the interest rate, but both are positive and continuously compounded. Rank the following quantities in ascending order (i.e., from lowest to highest): (A) = Current stock price (B) = One-year forward price Two-year forward price (C) (D) = Two-year prepaid forward price (E) = Expected stock price at the end of two years
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