An
asset manager anticipates the receipt of funds in 200 days, which he
will use to purchase a particular stock. The stock he has in mind is
currently selling for $62.50 and will pay a $0.75 dividend in 50 days
and another $0.75 dividend in 140 days.The
risk-free rate is 4.2 percent. The manager decides to commit to a
future purchase of the stock by going long a forward contract on the
stock.A. At what price would the manager commit to purchase the stock in 200 days through a forward contract?B.
Suppose the manager enters into the contract at the price you found in
Part A. Now, 75 days later, the stock price is $55.75. Determine the
value of the forward contract at this point.C. It is now the expiration day, and the stock price is $58.50. Determine the value of the forward contract at this time.