Final answer:
A forward contract is an agreement between two parties to buy or sell an asset at an agreed-upon price in the future. The forward price can be determined using the formula: Forward Price = Spot Price - Present Value of Dividends.
Step-by-step explanation:
A forward contract is an agreement between two parties to buy or sell an asset at an agreed-upon price in the future. In this case, we have a 10-month forward contract on a stock. To determine the forward price, we need to take into account the dividends that are expected to be paid out during the contract period.
The forward price formula is:
Forward Price = Spot Price - Present Value of Dividends
Since dividends of GH¢0.95 per share are expected in months 6 and 9, we need to calculate the present value of these dividends using the risk-free interest rate. Once we have the present value, we subtract it from the spot price to find the forward price.