a) If the dividend yield is 1.40% annualized, the interest rate is -0.10% annualized, and the index is trading at 28, 144 today, what is the expected price of a 6-month forward? 28, 144e(-0.001 -0.0140)*0.50 = 27,961.66 ) The 6-month forward is currently quoted at 28,000. Using the information above and the grid below, show how you would arbitrage this index profitably. Be sure to indicate whether each transaction is long or short ( buy or sell) and to include (+) and (-) signs on your cash flows. Use 0 decimals (whole numbers only) in your answers. Transaction Time 0 cash flows Time t cash flows Totals:
a) If the dividend yield is 1.40% annualized, the interest rate is -0.10% annualized, and the index is trading at 28, 144 today, what is the expected price of a 6-month forward? 28, 144e(-0.001 -0.0140)*0.50 = 27,961.66 ) The 6-month forward is currently quoted at 28,000. Using the information above and the grid below, show how you would arbitrage this index profitably. Be sure to indicate whether each transaction is long or short ( buy or sell) and to include (+) and (-) signs on your cash flows. Use 0 decimals (whole numbers only) in your answers. Transaction Time 0 cash flows Time t cash flows Totals:
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 12P
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Transcribed Image Text:a) If the dividend yield is 1.40% annualized, the interest
rate is -0.10% annualized, and the index is trading at
28, 144 today, what is the expected price of a 6-month
forward? 28, 144e(-0.001 -0.0140)*0.50 = 27,961.66 b
) The 6-month forward is currently quoted at 28,000.
Using the information above and the grid below, show
how you would arbitrage this index profitably. Be sure
to indicate whether each transaction is long or short (
buy or sell) and to include (+) and (-) signs on your
cash flows. Use 0 decimals (whole numbers only) in
your answers. Transaction Time 0 cash flows Time t
cash flows Totals:
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