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

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The S&R index spot price is 1100, the continuously compounded interest rate is 5%, and the...
The S&R index spot price is 1100, the continuously compounded interest rate is 5%, and the dividend yield on the index is 2%. (Round your answers to two digits after the decimal point when rounding is necessary) (A)What is the fair forward price for a 6-month forward? (B)Suppose you observe a 6-month forward price of 1120, and you decide to perform an arbitrage strategy. Illustrate the transactions you will undertake and the amount of profit you will make from this...
Suppose the value of the S&P 500 Stock Index is currently $1,750. If the one-year T-bill...
Suppose the value of the S&P 500 Stock Index is currently $1,750. If the one-year T-bill rate is 5.3% and the expected dividend yield on the S&P 500 is 4.6%. a. What should the one-year maturity futures price be? (Do not round intermediate calculations.) Futures price $ b. What would the one-year maturity futures price be, if the T-bill rate is less than the dividend yield, for example, 3.6%? (Do not round intermediate calculations.) Futures price
Suppose the value of the S&P 500 Stock Index is currently $1,750. If the one-year T-bill...
Suppose the value of the S&P 500 Stock Index is currently $1,750. If the one-year T-bill rate is 5.3% and the expected dividend yield on the S&P 500 is 4.6%. a. What should the one-year maturity futures price be? (Do not round intermediate calculations.) calculate Futures price $ b. What would the one-year maturity futures price be, if the T-bill rate is less than the dividend yield, for example, 3.6%? (Do not round intermediate calculations.)calculate Futures price $
The risk-free rate is 5% and the dividend yield on the S&P 500 index is 2%....
The risk-free rate is 5% and the dividend yield on the S&P 500 index is 2%. Which of the following is correct when a futures option on the index is being valued? The futures price of the S&P 500 is treated like a stock paying a dividend yield of 5%. The futures price of the S&P 500 is treated like a stock paying a dividend yield of 2%. The futures price of the S&P 500 is treated like a stock...
The current level of the S&P 500 index is 2,250. The dividend yield on the S&P...
The current level of the S&P 500 index is 2,250. The dividend yield on the S&P 500 is 3%. The risk-free interest rate is 6% with continuous compounding. The futures price quote for a contract on the S&P 500 due to expire 6 months from now should be __________. A) 2,774.30                       B) 2,784.53                  C) 2,768.63                  D) 2,797.47
You have the following market data. The S&P 500 market index currently is 94.87. The annualized,...
You have the following market data. The S&P 500 market index currently is 94.87. The annualized, continuously compounded dividend yield on this index is 3.71%. The futures contract on this index has an index multiplier of 100. The annualized, continuously compounded risk-free rate is 3.41%. The index futures contract that expires in 5 months has a futures price of 80.32. What is the total net profit if you execute the arbitrage strategy with one futures contract? Do not round values...
The S&R index level is 900 at t=0. The dividend yield is 3% p.a. continuously compounded...
The S&R index level is 900 at t=0. The dividend yield is 3% p.a. continuously compounded and the risk-free rate is 5% continuously compounded. (a) What is the theoretical forward price with a maturity of 1 year? (b) Suppose you observe a forward price with a maturity of 1 year equal to 950. What position do you take in order to earn arbitrage profit? A. Long stock and short forward B. Long stock and long forward C. Short stock and...
The 6-month forward price of the S&P 500 Index is 1400 and the volatility of the...
The 6-month forward price of the S&P 500 Index is 1400 and the volatility of the index is 15%. What is the price of a put option that expires in 6 months if the strike price is 1450, risk free rate is 5% (continuous). The dividend yield on the is 3%.
The S&R index spot price is 1100, the continuously compounded risk-free rate is 5%, and the...
The S&R index spot price is 1100, the continuously compounded risk-free rate is 5%, and the continuous dividend yield on the index is 2%. (a) Suppose you observe a 6-month forward price of 1120. What arbitrage would you undertake? (b) Suppose you observe a 6-month forward price of 1110. What arbitrage would you undertake? *YOU MUST ANSWER WITH DETAILED WORKING!!
On January 1, you sell one April S&P 500 Index futures contract at a futures price...
On January 1, you sell one April S&P 500 Index futures contract at a futures price of 2,300. If the April futures price is 2,400 on February 1, your profit would be __________ if you close your position. (The contract multiplier is 250.) A) $12,500                        B)  -$25,000                 C)  $25,000                   D)  -$12,500 The current level of the S&P 500 index is 2,350. The dividend yield on the S&P 500 is 2%. The risk-free interest rate is 5%with continuous compounding. The futures price quote for a contract on...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT