You have entered into a long forward contract on a dividend-paying stock some time ago, and this will expire in six months. it has a delivery price of $40 and the current stock price is $35. the stock provides a fixed dividend yield of 8% with semi-annual compounding. if the risk-free rate is 12% per annum with continuous compounding, what is the value of this long forward contract?

a. $6.72

b. -$4.02

c. $4.02

d. -$6.72

correct option is B. -$4.02

Explanation:

given data

delivery price = $40

current stock price = $35

fixed dividend yield = 8% = 0.08

risk free rate = 12% = 0.12

solution

as we know that forward contract is a agreement that is made between 2 parties ( seller or buyer ) asset in future at today fix price in specified time,

we get here long forward contract value that is express as

long forward contract =    ...................1

put here value we get

long forward contract =  

solve it we get

long forward contract = -$4.02

so correct option is B. -$4.02

answer with step-by-step explanation:

a. wx is perpendicular to xy - true:

(since x is adjacent to x and y and all angles are 90 degrees in a square, therefore wx is perpendicular to xy)

b. ∠w is congruent to ∠x - true:

(all angles in a square are equal to each other)

c. ∠w is supplementary to ∠x - true:

(∠w and ∠x both are right angles which add up to 180 degrees so they are supplementary angles)

d. wxyz is a rhombus - true:

(a rhombus has all sides equal in length and so has a square so it is a rhombus)

e. wxyz is a trapezoid - false:

(a trapezoid has only one pair of parallel sides while a square has two pairs of parallel sides)

f. wx is parallel to yz - true:

(wx and yz are parallel to each other)