Question #41
Reading: Reading 30 Pricing and Valuation of Forward Commitments
PDF File: Reading 30 Pricing and Valuation of Forward Commitments.pdf
Page: 17
Status: Unattempted
Question
The value of the S&P 500 Index is 1,260. The continuously compounded risk-free rate is 5.4% and the continuous dividend yield is 3.5%. Calculate the no-arbitrage price of a 160-day forward contract on the index.
Answer Choices:
A. $562.91
B. $1,270.54
C. $1,310.13
Explanation
FP = 1,260 × e(0.054 − 0.035) × (160 / 365) = 1,270.54