The current level of a stock index is 450. The dividend yield on the index is 4%
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The current level of a stock index is 450. The dividend yield on the index is 4% per year (in continuously compounded terms), and the risk-free rate of interest is 8% for six-month investments. A six-month futures contract on the index is trading for 465. Identify the arbitrage opportunities in this setting, and explain how you would exploit them.
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We are given S 450 F 465 d 004 r 008 and T 1 Using the continuous dividend formula the forward price ...View the full answer
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