Question: The S R index spot price is 1100 and the continuously

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?

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  • CreatedAugust 12, 2015
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