Problem

17. A three month-forward contract on an index is trading at 756 while the index itself is...

17. A three month-forward contract on an index is trading at 756 while the index itself is at 750. The three-month interest rate is 6%.

(a) What is the implied dividend yield on the index?

(b) You estimate the dividend yield to be 1% over the next three months. Is there an arbitrage opportunity from your perspective?

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Solutions For Problems in Chapter 4