### CFA Practice Question

There are 227 practice questions for this study session.

### CFA Practice Question

A portfolio manager expects to purchase a portfolio of stocks in 180 days. To hedge against the market he decides to take a long position on a 180-day forward contract on the S&P 500 stock index. The index is currently at \$1245. The continuously compounded dividend yield is 1.45%. The discrete risk-free rate is 4.6%. What is the no-arbitrage forward price on this contract?

rc = ln(1 + r) = ln(1 + 0.046) = 0.045

F0(T) = (S0 e-δT) erc T = (1245 x e -0.0145 x (180/365)) (e 0.045 x (180/365)) = \$1263.87

User Comment
turtle F(0,T)=So*e^(r-b)T
PaulChia there is a typo in the ans

risk free rate is 0.046 not 0.045

ans should be 1,264.49
yly14 there is no typo, as the continuous compounded r.f.r. should be ln(1+4.6%) = 4.5%.
Do be careful though to divide 180 by 365 instead of 360.
mcspaddj Thanks yly14. I was thinking there was a typo as well.
robertucla You need continuous not discrete
ashish100 this is some mind boggling shite.. need to take a break
ashish100 i get it now. :D
davidt87 just be sure to check if the questions asking about continuous if the discount rate is continuous or discrete