The Excel Application box in the chapter shows how to use the spot-futures parity relationship to find

Question:

The Excel Application box in the chapter shows how to use the spot-futures parity relationship to find a "term structure of futures prices," that is, futures prices for various maturity dates.

a. Suppose that today is January 1, 2013. Assume the interest rate is 3% per year and a stock index currently at 1,500 pays a dividend yield of 1.5%. Find the futures price for contract maturity dates of February 14, 2013, May 21, 2013, and November 18, 2013.

b. What happens to the term structure of futures prices if the dividend yield is higher than the risk-free rate? For example, what if the dividend yield is 4%?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...