# Question

The S&R index spot price is 1100 and the continuously compounded risk-free rate is 5%. You observe a 9-month forward price of 1129.257.

a. What dividend yield is implied by this forward price?

b. Suppose you believe the dividend yield over the next 9 months will be only

0.5%. What arbitrage would you undertake?

c. Suppose you believe the dividend yield will be 3% over the next 9 months.

What arbitrage would you undertake?

a. What dividend yield is implied by this forward price?

b. Suppose you believe the dividend yield over the next 9 months will be only

0.5%. What arbitrage would you undertake?

c. Suppose you believe the dividend yield will be 3% over the next 9 months.

What arbitrage would you undertake?

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