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Basic Question 4 of 4
A portfolio manager expects to purchase a portfolio of stocks in 180 days. To hedge against the market he decides to take a long position on a 180-day forward contract on the S&P 500 stock index. The index is currently at $1245. The continuously compounded dividend yield is 1.45%. The discrete risk-free rate is 4.6%. What is the no-arbitrage forward price on this contract?
User Contributed Comments 8
| User | Comment |
|---|---|
| turtle | F(0,T)=So*e^(r-b)T |
| PaulChia | there is a typo in the ans risk free rate is 0.046 not 0.045 ans should be 1,264.49 |
| yly14 | there is no typo, as the continuous compounded r.f.r. should be ln(1+4.6%) = 4.5%. Do be careful though to divide 180 by 365 instead of 360. |
| mcspaddj | Thanks yly14. I was thinking there was a typo as well. |
| robertucla | You need continuous not discrete |
| ashish100 | this is some mind boggling shite.. need to take a break |
| ashish100 | i get it now. :D |
| davidt87 | just be sure to check if the questions asking about continuous if the discount rate is continuous or discrete |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
describe how equity forwards and futures are priced, and calculate and interpret their no-arbitrage value;
CFA® 2025 Level II Curriculum, Volume 5, Module 31.