Pricing And Valuation Of Equity Forward Contracts: An Asset Manager Anticipates The Receipt Of Funds In 200Days

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An asset manager anticipates the receipt of funds in 200days, which he will use to purchase a particular stock. The stock he had in mind is currently selling for P62.50 and will pay a P0.755 dividend in 50 days and another P0.75 dividend in 140 days. The risk free rate is 4.2%. The manager decides to commit to a future purchase of stock by going long a forward contract on the stock.

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At what price would the manager commit to purchase the stock in 200 days through a forward contract? (5 marks)
Suppose the manager enters into the contract at the price you found in Part a. Now, 75 days later, the stock price is P55.75. Determine the value of the forward contract at this point. (5 marks)

It is now the expiration day, and the stock price is P58.50. Determine the value of the forward contract at this time. (5 marks)

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