Question IV: The S&R index spot price is 1100 and the continuously compounded risk-free rate is 5%. You observe a 9-month forward price of 1129.257. (a) What dividend yield is implied by this forward price? (b) Suppose you believe the dividend yield over the next 9 months will be only 0.5%. What arbitrage would you undertake? (c) Suppose you believe the dividend yield will be 3% over the next 9 months. What arbitrage would you undertake?

Question IV: The S&R index spot price is 1100 and the continuously compounded risk-free rate is 5%. You observe a 9-month forward price of 1129.257. (a) What dividend yield is implied by this forward price? (b) Suppose you believe the dividend yield over the next 9 months will be only 0.5%. What arbitrage would you undertake? (c) Suppose you believe the dividend yield will be 3% over the next 9 months. What arbitrage would you undertake?

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Description: Question IV:The S&R index spot price is 1100 and the continuously compounded risk-free rate is 5%. You observe a9-month forward price of 1129.257.(a) What dividend yield is implied by this forward price?(b) Suppose you believe the dividend yield ove

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 11P

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