Make sure that the calculations are done in Excel, and that the formulas you use are in the cells. If you simply have values in all the cells you will not get credit for this part of the assignment.

a.) Fair Forward Price (spreadsheet tab Forwards)

Input: information Asset Price $138.22 Assume the interest rate is 2.35% compounded continuously for all maturities. Assume the asset pays a fixed dividend of $13 in 1 month, and $14 in 7 months.

Output: Calculate the fair market forward price for: a 2-month forward, a 6-month forward, and a 1-year forward

b.) Arbitrage (spreadsheet tab Forwards)

Input: information Assume that the information in part (a) is still applicable, but that the forward contracts are trading at the following prices: 2-month forward $125.25 6-month forward $121.77 1-year forward $116.34

Output: Describe the strategy you would use to achieve arbitrage profits (if possible), and calculate the arbitrage profit for each of the three forward contracts. For each strategy assume that it will cost you $2.5 to execute all the trades (round trip), as your total transaction cost (subtract $2.50 at the end).

c.) Estimating Cost of Carry Factors from Market Data (spreadsheet tab CarryAnalyis)

Input information: Given the following data: Assume the date is Monday, September 13, 2021 S&P500 spot = 4,453.24 [SPX INDEX], the index has a dividend yield of 1.33% (compound continuously) S&P500 December 2021 Futures = 4,455.00 (maturity 12/17/21) [ESZ1 INDEX] S&P500 March 2022 Futures = 4,437.50 (maturity 3/18/22) [ESH2 INDEX] S&P500 June 2022 Futures = 4,430.30 (maturity 6/17/22) [ESM2 INDEX]

Output: Calculate the implied interest rate for the futures contracts relative to the spot value of the S&P500. Use the continuous time formulation for valuing commodity forwards/futures to calculate your answer. Assume the year has 365 days.