MDLZ stock sells at $45.20 and is expected to pay dividends of $.17 in 3, 6, 9 and 12 months respectively. The risk-free rate is 4% per annum continuously compounded for all maturities. We consider the 1-year futures contract on MDLZ.

(a) What is the theoretical 1-year futures price?

(b) The 1-year futures market price is $49. Is there an arbitrage? If so, how can we benefit from it? Show all details.

(c) Based on the futures market price in part (b), what is the value of a short futures contract on MDLZ 6 months from now if the futures price in 6 months is 46$?

Answer rating: 100% (QA)

a Theoretical Futures Price Spot Price PV of Dividendse rt Therefore Theoret... View the full answer