The current price of BUG stock is $51.The continuously compounded interest rate is 5.25 percent per year.What is the five-month forward price for BUG stock?

Question

Quizplus · Accepted Answer

The formula for calculating the forward price of a stock is:

Forward price = Spot price x e^(rt)

Where:
r = continuously compounded interest rate
t = time until the forward contract expires

In this case, the time until the forward contract expires is five months, or 5/12 years.

Plugging in the numbers, we get:

Forward price = $51 x e^(0.0525 x (5/12))
Forward price = $52.13

Therefore, the answer is D) $52.13.

The Current Price of BUG Stock Is $51