Question

The S&P 500 index is currently at $2,500. If we assume a continuously compounding interest rate...

The S&P 500 index is currently at $2,500. If we assume a continuously compounding interest rate of 1% and a continuously compounding dividend yield of 2%, what will be the fair forward price for the index at 1-year maturity? Round to integer.

The S&P 500 index is currently at $2,500. If we assume a continuously compounding interest rate of 1% and a continuously compounding dividend yield of 2%, what will be the fair forward price for the index at 5-year maturity? Round to integer.

The S&P 500 index is currently at $2,500. If we assume a continuously compounding interest rate of 1% and a continuously compounding dividend yield of 2%, what will be the fair forward price for the index at 4-year maturity? Round to integer.

The S&P 500 index is currently at $2,500. If we assume a continuously compounding interest rate of 1% and a continuously compounding dividend yield of 2%, what will be the fair forward price for the index at 3-year maturity? Round to integer.

The S&P 500 index is currently at $2,500. If we assume a continuously compounding interest rate of 1% and a continuously compounding dividend yield of 2%, what will be the fair forward price for the index at 2-year maturity? Round to integer.


Homework Answers

Answer #1

Given, current price of S&P 500 index S0 = $2500

interest rate r = 1% continuously compounded

dividend yield q = 2% continuously compounded

So, Forward price = S0*e^((r–q )T)

For 1 year maturity, forward price = 2500*e^((0.01-0.02)*1) = $2475

For 2 year maturity, forward price = 2500*e^((0.01-0.02)*2) = $2450

For 3 year maturity, forward price = 2500*e^((0.01-0.02)*3) = $2426

For 4 year maturity, forward price = 2500*e^((0.01-0.02)*4) = $2402

For 5 year maturity, forward price = 2500*e^((0.01-0.02)*5) = $2378

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