A portfolio manager expects to purchase a portfolio of stocks in 60 days. In order to hedge against the potential price increase over the next 60 days, she decides to take a long position on a 60-day forward contract on the S&P 500 stock index. The index is currently 2135. The continuously compounded dividend yield is 2%. The discrete risk free rate is 4%. (Use “Pricing_Equity Model Continuou”)
A. What is the “no-arbitrage” forward price on this forward contract?
B. 30 days into the forward contract, the S&P 500 index is 2100. What is the value of the forward contract position at this 30 days arbitrary time into the contract? (assuming the Forward contract negotiated and locked in price at the “no-arbitrage” forward price above).
C. At expiration, the S&P 500 index value is 2175. What is the value of the forward contract position at expiration?