MediumFinanceAcceptance 65%

Forward Price with a Dividend Yield

J.P. MorganCitadel

A stock trades at $100 with a continuous dividend yield of 2%. With a 5% continuously-compounded risk-free rate, what is the 1-year forward price (in dollars)?

Approach

F = S·e^((r − q)T).

The dividend yield offsets the financing cost.

Answer

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The answer is 103.05. Sign in free for the full worked solution and to check your own answer.