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The current share price of a stock is $95.00.
The stock will pay an annual dividend of $7.00 in the following 3 years.
The first dividend will be paid one year from now.
The continuous compounding interest rate is 4%.
Determine the forward price of the forward contract that matures in 3 years.
Round your answer to the nearest dollar.
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Make a Table
Year make pay Balance
compounding dividend
1 95*2.71828^0.04 98.88 - 7 = 91.88
= 98.88
2 91.88*2.71828^0.04 95.63 - 7 = 88.63
= 95.63
3 88.63*2.71828^0.04 92.25 - 7 = 85.25
= 92.25
ANSWER. After 3 years, the stock is $85.25; the total dividend paid in 3 years is $21.
The total price is $85.25 + $21 = $106.21.
Round as you want.