Stock B is trading at $1100. The risk-free rate is 1% for all maturities and the average dividend on the stock is $10 each quarter-end. What is the six-month forward price of the stock, assuming interest calculations are on a continuously-compounded basis?
A) $1,050.65
B) $1,085.49
C) $1,105.51
D) $1,125.54

Question

Quizplus · Accepted Answer

The forward price is calculated using the formula: F = S * e^(rT) - PV(Dividends). Here, S = $1100, r = 0.01, T = 0.5, and the present value of dividends for two quarters is $10 * e^(-0.01*0.25) + $10 * e^(-0.01*0.5). Calculating this gives the forward price as approximately $1,085.49.

Stock B Is Trading at $1100