A stock is expected to pay a dividend of $0.70 per share in one
month, in four months and in seven
months. The stock price is $30, and the risk-free rate of interest
is 7% per annum with continuous
compounding for all maturities. You have just taken a short
position in an eight-month forward
contract on the stock. Six months later, the price of the stock has
become $34 and the risk-free rate
of interest is still 7% per annum. What is the value your position
six months later?
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