A 1-year long forward contract on a non-dividend-paying stoc
Question and Solution
A 1-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $40 and the risk-f
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A 1-year long forward contract on a non-dividend-paying stock is entered into when the stock price is $40 and the risk-free rate of interest is 10% per annum with continuous compounding. (a) What are the forward price and the initial value of the forward contract? (b) Six months later, the price of the stock is $45 and the risk-free interest rate is still 10%. What are the forward price and the value of the forward contract?
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