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?

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?

Foundations of Business - Standalone book (MindTap Course List)

4th Edition

ISBN:9781285193946

Author:William M. Pride, Robert J. Hughes, Jack R. Kapoor

Publisher:William M. Pride, Robert J. Hughes, Jack R. Kapoor

Chapter15: Using Management And Accounting Information

Section: Chapter Questions

Problem 4DQ

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D & R A1 3 - 4

Question 3. Stock Futures with Dividends

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?

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