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 under...

a We plug the continuously compounded interest rate the forward price the initial index level and th ...

The S&R index spot price is 1100 and the continuously compounded risk-free rate is 5%. You observe

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 yield is implied by this forward price?
b. Suppose you believe the yield over the next 9 months will be only
0.5%. What arbitrage would you undertake?
c. Suppose you believe the yield will be 3% over the next 9 months.
What arbitrage would you undertake? 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...