The Spot price of a stock index that follows a Geometric Brownian Motion is currently 4000 and over the next year it will pay dividends at a continuous rate of (delta=) 3% against a continuous risk-free rate of (r =) 2%. Its annual standard deviation  is (Sigma =) 20% p.a. continuous.

What is the forward price at which you could trade the index now for delivery in a year?

Answer rating: 100% (QA)

To calculate the forward price of the stock index we can ... View the full answer