Stock index futures

[afranks1]

Referring here to CFAI reading 52, practice problem 52.
Question reads: a stock index is at 1,521.75. A futures contract on the index expires in 73 days. The risk-free interest rate is 6.10%. The value of the dividends reinvested over the life of the futures is 5.36%.
Since they don’t give us the discrete dividend yield or continuously compounded dividend yield, am I correct in saying that we need to:
1. Find the dividend yield by either of the 2 methods shown in the book, (e.g. PV dividends / spot. Then use this with (1 / (T/365)) * (1+discrete dividend yield) to obtain the continuously compounded dividend yield.
2. Use part 1 to find futures price =
spot * e^ (continuously compounded risk free rate - continuously compounded dividend yield)*T

 

[Galli]

I find it less confusing to just convert simple interest into continulousy compounding interest
5.36/152175 = .003522 simple interest
LN(1.0035566) = .003516 *(365/73) = 1.75%

 

[edupristine]

The future value can be calculated as (based upon continuosly compounded rate )
F=1521.75 * e^ (0.610- 0.536) 73/365 = 1521.75 * 1.0149 = 1544.42
I hope it works…

 

[Galli]

edupristine wrote:
The future value can be calculated as (based upon continuosly compounded rate )
F=1521.75 * e^ (0.610- 0.536) 73/365 = 1521.75 * 1.0149 = 1544.42
I hope it works…

Not pointing out a mistake in your calculation but clarifying that the question only supplies the dividends received ($5.36) over the 73 day period, not the dividend yield (which we have to calculate)