Forward Price With a Dividend Yield

The dividend yield reduces the effective cost of carry relative to a non-dividend-paying stock.

The forward price formula with a continuous yield $q$ is $F=S_0{e}^{(r-q)T}$.

1. 1. Apply cost of carry with a dividend yield

   For a continuous dividend yield $q$, the forward price is $S_0$ grown at the net rate $r-q$.

   $$F=S_0{e}^{(r-q)T}=100e^{(0.05-0.02)(1)}$$

2. 2. Compute

   Evaluating the exponential gives the forward price.

   $$F=100e^{0.03}\approx 103.0455$$

Answer: 100e^{0.03}