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An asset manager anticipates the receipt of funds in 200 days, which he will use to purchase – RoyalCustomEssays

An asset manager anticipates the receipt of funds in 200 days, which he will use to purchase

FINB862 Finance for Corporations
July 16, 2018
my and Mitchell are equal partners in the accru
July 16, 2018

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.

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