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Assume that the risk-free interest rate is 4% per annum with continuous compounding and that the dividend yield on a stock index varies throughout the
Assume that the risk-free interest rate is 4% per annum with continuous compounding and that the dividend yield on a stock index varies throughout the year. In February, May, August, and November, dividends are paid at a rate of 2% per annum. Suppose that the value of the index on July 31 is 1,300. What is the future price for a contract deliverable in December 31 of the same year?
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