 # interesting forward question

Jim Trent, CFA has been asked to price a three month forward contract on 10,000 shares of Global Industries stock. The stock is currently trading at \$58 and will pay a dividend of \$2 today. If the effective annual risk-free rate is 6 percent, what price should the forward contract have? Assume the stock price will change value after the dividend is paid. A) \$56.82. B) \$56.85. C) \$58.85. D) \$56.83.

A assuming that the price drops to 56. 56*(1.060^*3/12) = 58.82

A FP = (S - PVD) x (1+rf)^t = 56 x (1.06)^(90/365)

A agree w/ the 2 posts above.

a for me too

I think I’ll hop on the A bandwagon. Seems to have some smart people on it. Rekooh, what’s the answer?

Same as above, A.

(58-2)(1.06^0.25) = 56*1.014673 = 56.821688 = A

The answer is A Edit: for my stupidity

chad, im especially interested in why you choose A. Did you just the 82 and choose A. I guess I am thinking too much.

1.06^.2466 = 1.01447 1.01447*56 = 56.81

damn, never mind…thanks guys…i was multiplying instead of using the exponent. Sorry for the confusion

rekooh use for the power 3/12 if they give it in months