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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 passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
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.