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Ellen Corp. wants to buy GE stock in nine months. Right now the stock is traded...

Ellen Corp. wants to buy GE stock in nine months. Right now the stock is traded at $14.60. The related annual risk-free interest rate is 4.55%. The stock is expected to pay a semi-annual dividend of $0.50 in five months and another $0.50 in eleven months. a. Describe the risk faced by Ellen Corp. b. Suppose Ellen Corp. wants to use equity forward to hedge against the risk. Determine its position. Should they long or short the contract? c. Draw a timeline and clearly mark the following: initiation, maturity, dividend payments. d. Determine the forward price. e. Determine the forward value at initiation. f. Suppose two months later the GE stock is traded at $15.88. Determine the forward’s value to Ellen Corp. g. Nine months later the forward matures. How much will Ellen Corp. pay to the counter party?

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