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a)    On January 1st 2019 one share of BBK plc is priced at $35 and is...

  1. a)    On January 1st 2019 one share of BBK plc is priced at $35 and is expected to pay a dividend of $1.25 in 6 months and a further dividend of $1.00 in 1 year. The relevant risk-free rate of interest is 3% per annum with continuous compounding. What should be the price of a forward contract, written on a BBK share, which matures immediately after the second dividend is paid and what is the initial value of the forward contract?

b) Explain and discuss your answer to part a.

                                                                                                                                   

           

c)    BBK shares are included in the RNB500 stock index which is trading at 4,000 index points with a contract multiplier of $10 per full index point. If the annual dividend yield is 2% and the risk-free rate of interest is 3%, what is the value of a futures contract written on the RNB500 that matures in 6 months?

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