Question: A stock is expected to pay a dividend of $2 per share in one month and again in four months. The stock price is $75 and the risk-free rate of interest is 7% per annum with continuous compounding for all maturities. An investor has just taken a short position in a six-month forward contract on the stock.
Q1. What are the forward price and the initial value of the forward contract?
Q2. Three months later, the price of the stock is $73 and the risk-free rate of interest is still 7% per annum. What are the forward price and the value of the short position in the forward contract?