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Polytechnic State University Sanluis Jan-2006 - Nov-2010
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Category > EngineeringPosted 19 May 2017My Price15.00
A one-year long forward contract on a non-dividend-paying stock
A one-year long forward contract on a non-dividend-paying stock is entered into when the stock price is S40 and the risk-free rate of interest is 10% per annum with continuous compounding.
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a. What are the forward price and the initial value of the forward contract?
b. Six months later, the price of the stock is $45 and the risk-free interest rate is still 10%. What are the forward price and the value of the forward contract?