### CFA Practice Question

There are 227 practice questions for this study session.

### CFA Practice Question

Three months ago, an investor entered into a six-month forward contract to sell a stock. The delivery price agreed to was \$55. Today, the stock is trading at \$45. Suppose the three-month interest rate is 4.80%, the stock is expected to pay a dividend of \$2 in one month, and the one-month rate of interest is 4.70%. What is the value of the contract held by the investor? Assume continuously compounding.
A. 43.5272
B. 43.5191
C. 47.5593
Explanation: The present value of this dividend payment is e(-0.047 * 1/12) = 1.992. The arbitrage-free forward price is (45 - 1.992) * e(0.048 * 3/12) = 43.5272.

### User Contributed Comments3

User Comment
FRAbyFRA They're asking for value yet answers are prices.
sunday128 Exactly...
syvestro Question is written wrong. This isn't the value of the contract. It's the price of the offsetting contract that you would use to value the held contract.