A stock is expected to pay a dividend of $5 per share in 1 month and $5 again in 7 months.
The stock price is $100, and the risk-free rate of interest is 10% per annum with continuous compounding. The yield curve is flat. Assume that investors are risk-neutral.
An investor has just taken a short position in a one year forward contract on the stock.
Find the forward price (F1) and value of the contract (V0) initially. Also find the value of the short futures contract in 6 months (V0.5, SF) if the stock price fell to $90.