Question

HAW, Inc. plans to pay a $1.10 dividend per share in 3 months and a $1.15 dividend in 6 months. HAW's share price today is $45.60 and the continuously compounded quarterly interest rate is 2.1%. What is the price of a forward contract, which expires immediately after the second dividend?

Answer 1

$45.28

Step-by-step explanation:

The computation of price of a forward contract is shown below:-

Cash flows Future Value Amount Amount

A $45.60 $45.6 × exponential(0.021 × 2) $47.55599

B $1.10 $1.10 × exponential(0.021 × 1) $1.123344

C $1.15 $1.15 × exponential(0.021 × 0) $1.15

So, The value of forwards contract = Amount of A - Amount of B - Amount of C

= $47.55 - $1.12334 - $1.15

= $45.28