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(10 points) Today's value of the S&P 500 stock index is at 4,500. The stocks underlying the index provide an estimated dividend yield of 1.4%
(10 points) Today's value of the S&P 500 stock index is at 4,500. The stocks underlying the index provide an estimated dividend yield of 1.4% p.a. (continuously compounded). The risk-free rate is at 1.6% p.a. (continuously compounded). Consider a 6-month forward contract on the S&P 500 stock index. (a) Compute today's arbitrage-free forward price of the 6-month forward contract|. Suppose you are entering today into a short position in the 6-month forward contract on the S&P 500 with the forward price computed in (a). (b) What is the value of this short position in the forward contract today? (c) Assume in three months the S&P 500 index will be at 4,300. What will be the value of your short position in the forward contract then? (10 points) Today's value of the S&P 500 stock index is at 4,500. The stocks underlying the index provide an estimated dividend yield of 1.4% p.a. (continuously compounded). The risk-free rate is at 1.6% p.a. (continuously compounded). Consider a 6-month forward contract on the S&P 500 stock index. (a) Compute today's arbitrage-free forward price of the 6-month forward contract|. Suppose you are entering today into a short position in the 6-month forward contract on the S&P 500 with the forward price computed in (a). (b) What is the value of this short position in the forward contract today? (c) Assume in three months the S&P 500 index will be at 4,300. What will be the value of your short position in the forward contract then
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