KMW,Inc.plans to pay a dividend of $0.50 per share both 3 and 6 months from today.KMW's share price today is $36.00 and the continuously compounded quarterly interest rate is 1.5%.What is the price of a 6-month prepaid forward contract,which expires immediately after the second dividend?

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The price of a 6-month prepaid forward contract can be calculated by discounting the current share price and adding the present value of dividends received during the period. The formula for the present value of dividends is $D \times e^{-rt}$, where $D$ is the dividend, $r$ is the continuously compounded interest rate, and $t$ is the time in years. For a 6-month period, $t = 0.5$ and for a 3-month period, $t = 0.25$.First, calculate the present value of the dividends:- For the dividend in 3 months: $0.50 \times e^{-0.015 \times 0.25} = 0.50 \times e^{-0.00375} \approx 0.4981$- For the dividend in 6 months: $0.50 \times e^{-0.015 \times 0.5} = 0.50 \times e^{-0.0075} \approx 0.4962$The total present value of dividends is approximately $0.4981 + 0.4962 = 0.9943$.Next, calculate the present value of the share price, which is not discounted because we are considering a prepaid forward contract:- The share price today is $36.00.Therefore, the price of the 6-month prepaid forward contract is the current share price minus the present value of the dividends: $36.00 - 0.9943 \approx 35.0057$, which rounds to $35.02.

KMW,IncPlans to Pay a Dividend of $0