A stock is expected to pay a dividend of $1.50 per share in 3 months and a dividend of $1 per share in 5 months. The Stock Price is $70, and the risk free rate is 5% per annum with the continuous compounding for all maturities. An investor has just taken a long position in a 6-month forward contract on this stock.
a) What are the forward price and the initial value of the forward contract?
b) Three months later, the price of the stock is $65 and the risk – free rate of interest is still 5 % per annum. What are the forward price and the value of the long position in the forward contract?