Problem: KHC stock sells at $78.59 and is expected to pay dividends of $.0.6 in 3, 6, 9 and 12 months respectively. The risk-free rate is 5% per annum continuously compounded for all maturities. We consider the 1-year futures contract on KHC.
(a) What is the theoretical 1-year futures price?
(b) The 1-year futures market price is $82. Is there an arbitrage? If so, how can we benefit from it? Show all details.
(c) Based on the futures market price in part (b), what is the value of a short futures contract on KHC 6 months from now if the futures price in 6 months is 80$?