Question: could you help giving me explanations on this problem ? Thank you. Today's value of the S&P500 stock index is at 3,915. The 500 stocks

could you help giving me explanations on this problem ? Thank you.

Today's value of the S&P500 stock index is at 3,915. The 500 stocks underlying the index provide an estimated dividend yield of 1.5% p.a. (continuously compounded). The risk-free rate is at 1.7% p.a. (continuously compounded).

Consider a 3-month forward contract on the S&P500 stock index.

(a) Compute today's arbitrage-free forward price of the 3-month forward contract.

Suppose you are entering today into a long position in the 3-month forward contract on the S&P500 with the forward price computed in (a).

(b)What is the value of this long position in the forward contract today?

(c)Assume in one month the S&P500 index will be at 3,900. What will be the value of your long position in the forward contract then?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

1. Today's value of the S&P500 stock index is at 3,915. The 500 stocks underlying the index provide an estimated dividend yield of 1.5% p.a. (continuously compounded). The risk-free rate is at 1.7%...

1. (10 points) Today's value of the S&P500 stock index is at 3,915. The 500 stocks underlying the index provide an estimated dividend yield of 1.5% p.a. (continuously compounded). The risk-free rate...

1. The spot price of gold is $1,800 and the continuously compounded risk-free interest rate is 3%. Assume that gold will not have any storage cost. Please answer the following three questions: (1)...

I need a step by step solutions for the 10 problems in the excel file. The correct answers are provided I only need the solutions steps. Subject is Finance (options valuation) On March 2, a Treasury...

Need help with finance investment homework. Deadline is in 15 hours. Thank you. 1 Investments - Finance 460AB Homework #4, Due Friday February 10, 2017 at 6 PM For all assignments: Please place your...

Hi again, I was hoping you can help with this investment management assignment. I am attaching the word document. It is 4 problems about asset management. Thank you for your help! Fin 6310 1. Assume...

I need help with this data set, thank you! Data case 2 Econ 670 Show all your work to receive full credit. Completed assignments will include an Excel file. Please use one sheet for each question....

Looking for assistance in Finance HW..... I ONLY Need the FORMULASin the function ribbon (for the answers that I already have, which are attached below) Please advise if you can assist and provide...

You helped me a couple of weeks ago. I was wondering if i could setup a time for tomorrow that you could be available to help me with some questions. I will pay $20 per question. They are short and I...

Only need the excel section completed. I will do the written report stuff. Model is the format I want it complete in. Thanks Date 6/1/2010 7/1/2010 8/1/2010 9/1/2010 10/1/2010 11/1/2010 12/1/2010...

A chemical company manufactures an organic solid that is used in certain dye make ups. The following data were collected from this process. a. Construct charts for these data and comment on whether...

A force F applied to an object of mass m1 produces an acceleration of 3.00 m/s2. The same force applied to a second object of mass m2 produces an acceleration of 1.00 m/s2. (a) What is the value of...

In the HJM model, assuming the HJM no-arbitrage condition holds, derive the SDEs satisfied by the forward rates f (t, T ) and the zero-coupon bond prices B(t,T) under

Pongo is unable to complete his article for the paper due to his stolen equipment and because he was not able to visit all of the locations. His boss has consequently fired him. When he goes to the...