D & R A1 3 - 4Question 3. Stock Futures with DividendsToday is January 3. Your friend David has just bought a futures contract on a stock index, and the contract specifies one year to expiration. The current share price is $80, and the annually compounded interest rate is 10%. The stock will pay quarterly dividends of $2 during the next year, with dividends payments on the following dates:January 25April 25July 25October 25Assume that this is a non-leap year.Suppose that, instead of paying a quarterly dividend of $2, the stock index has an annual dividend yield of 10%. The continuously compounded interest rate is 10.52%. What is the price of the index futures on January 3? What is its value on February 17 when the index turns out to be $90?

ANSWER: DIVIDEND DATE TIME (DAYS) TIME(YEARS) e∧rt PV(d) 2 25 jan 22 days 0.060 1.01 2.01 2…

Answered: Today is January 3. Your friend David…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

See similar textbooks

D & R A1 3 - 4

Question 3. Stock Futures with Dividends

Today is January 3. Your friend David has just bought a futures contract on a stock index, and the contract specifies one year to expiration. The current share price is $80, and the annually compounded interest rate is 10%. The stock will pay quarterly dividends of $2 during the next year, with dividends payments on the following dates:

January 25
April 25
July 25
October 25

Assume that this is a non-leap year.

Suppose that, instead of paying a quarterly dividend of $2, the stock index has an annual dividend yield of 10%. The continuously compounded interest rate is 10.52%. What is the price of the index futures on January 3? What is its value on February 17 when the index turns out to be $90?

Expert Solution