This is actually Quiz 1-1 from ASM 9th edition
It says:
For a stock, you are given:
it pays quarterly dividends of 0.20
it has just paid a dividend
its price is 50
the continuously compounded risk-free interest rate is 5%
calculate the forward price for an agreement to deliver 100 shares of the stock six months from now
The solution says
F = 100(50)e^(0.05*0.5) - 100(0.20)e^(0.25*0.05) - 100(0.20)
100(0.20)e^(0.25*0.05) is the AV of divident at the end of three months
100(0.20) is the AV of dividend at the end of 6 months
why is the solution not including the dividend that was just paid?
It says:
For a stock, you are given:
it pays quarterly dividends of 0.20
it has just paid a dividend
its price is 50
the continuously compounded risk-free interest rate is 5%
calculate the forward price for an agreement to deliver 100 shares of the stock six months from now
The solution says
F = 100(50)e^(0.05*0.5) - 100(0.20)e^(0.25*0.05) - 100(0.20)
100(0.20)e^(0.25*0.05) is the AV of divident at the end of three months
100(0.20) is the AV of dividend at the end of 6 months
why is the solution not including the dividend that was just paid?
forward problem
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