Find the dividend rate by creating a weighted average

Reference no: EM131937513

Question: Assume that the risk-free interest rate is 9% per annum with continuous compounding and that the dividend yield on a stock index varies throughout the year. In February, May, August, and November, dividends are paid at a rate of 5% per annum. In other months, dividends are paid at a rate of 2% per annum. Suppose that the value of the index on July 31 is 1,300. What is the futures price for a contract deliverable on December 31 of the same year? (Hint: Find the dividend rate by creating a weighted average with the returns. For example: How many months did the dividend pay 5% and how many months did the investor pay the other amount?)

Reference no: EM131937513

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