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Some fund managers are trading the dividend difference among the component stocks in S&P500 index. 1) Given the following information, if the trading strategy's profit
Some fund managers are trading the dividend difference among the component stocks in S&P500 index. 1) Given the following information, if the trading strategy's profit is $2,000, what should be the dividend yield for the high-dividend portfolio? (Assume all the rates are continuously compounded.) Portfolio H SPX CORR(H, XPX)=1 Return in 6 months 10% 10% Initial Value (X) 1,000,000 1,000,000 Annualized dividend yield ? 1.71% Maturity 6 months 6 months Interest rate 0.5% 0.5% Notation: H is the high-dividend portfolio; SPX is the S&P500 portfolio; CORR is correlation. Some fund managers are trading the dividend difference among the component stocks in S&P500 index. 1) Given the following information, if the trading strategy's profit is $2,000, what should be the dividend yield for the high-dividend portfolio? (Assume all the rates are continuously compounded.) Portfolio H SPX CORR(H, XPX)=1 Return in 6 months 10% 10% Initial Value (X) 1,000,000 1,000,000 Annualized dividend yield ? 1.71% Maturity 6 months 6 months Interest rate 0.5% 0.5% Notation: H is the high-dividend portfolio; SPX is the S&P500 portfolio; CORR is correlation
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