The Excel Applications box in the chapter (available in Connect; link to Chapter 17 material) shows how
Question:
a. Suppose that today is January 1, 2015. Assume the interest rate is 1% per year and a stock index currently at 1,800 pays a dividend yield of 2%. Find the futures price for contract maturity dates of February 14, 2015, May 21, 2015, and November 18, 2015.
b. What happens to the term structure of futures prices if the dividend yield is lower than the risk-free rate? For example, what if the interest rate is 3%?
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...
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Step by Step Answer:
a Use the spreadsheet template from Connect input spot price dividend yield interest rate and ...View the full answer
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Related Book For 
Essentials of Investments
ISBN: 978-0077835422
10th edition
Authors: Zvi Bodie, Alex Kane, Alan J. Marcus
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