Question
The S&R index spot price is 1100, the continuously compounded interest rate is 5%, and the dividend yield on the index is 2%. (Round your
The S&R index spot price is 1100, the continuously compounded interest rate is 5%, and the dividend yield on the index is 2%. (Round your answers to two digits after the decimal point when rounding is necessary)
(A)What is the fair forward price for a 6-month forward?
(B)Suppose you observe a 6-month forward price of 1120, and you decide to perform an arbitrage strategy. Illustrate the transactions you will undertake and the amount of profit you will make from this arbitrage.
(C)What is the name of the above arbitrage strategy?
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Public Finance A Contemporary Application Of Theory To Policy
Authors: David N. Hyman
5th Edition
0030113172, 978-0030113178
