Question

hat is the six-­‐month forward price for a stock providing no income. The stock price is 50 and the continuouslycompounded interest rate is 1.56%? What is the forwardprice if the stock pays a 1%, 2%, 3% continuously compounded dividend yield?

Answer 1

Forward Price = S0 e(r-d)x.5
Spot Price	$50.00
Risk free Rate (r)	1.56%
Dividend Yield (d)	1.00%
Time	0.5
Forward Price = S0 e(r-d)x.5 = $50e(1.56%-1%)x.5	$50.14
Forward Price = S0 e(r-d)x.5
Spot Price	$50.00
Risk free Rate (r)	1.56%
Dividend Yield (d)	2.00%
Time	0.5
Forward Price = S0 e(r-d)x.5 = $50e(1.56%-2%)x.5	$49.89
Forward Price = S0 e(r-d)x.5
Spot Price	$50.00
Risk free Rate (r)	1.56%
Dividend Yield (d)	3.00%
Time	0.5
Forward Price = S0 e(r-d)x.5 = $50e(1.56%-3%)x.5	$49.64