Explanation:
This is a no-income case, and the forward price is given by:
Where:
Thus: F = 35(1.05)^3 = 40.5168 \approx \`$40.52`
Q.4897 Suppose that Paul enters into a 3-year forward contract on a stock that pays no dividends and that the current stock price is USD 35 and the annually-compounded risk-free rate is 5% What is the forward price of this forward contract?
A
$40.52
B
$36.75
C
$30.23
D
$40.67
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