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What is the price of the index futures on january

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Reference no: EM132954544

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.

Problem 1: 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?

Reference no: EM132954544

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