A portfolio manager expects to purchase a portfolio of stocks in 90 days. In order to hedge against a potential price increase over the next 90 days, she decide to take a long position on a 90-day forward contract on the S&P 500 stock index. The index is currently at 1145. The continuously compounded dividend yield is 1.75% . The risk-free rate is 4.25%.
A) Calculate the non-arbitrage forward price on this contract.
B) It is now 28 days since the portfolio manager entered the forward contract. The index value is at 1225. Calculate the value of the forward contract 28 days into the contract.
C) At expiration, the index value is 1235. Calculate the value of the forward contract 28 days into the contract.