dividen yield up -> futures price go down delta of futures = 1 > abs. delta of put <1 A
AndyPettitteIsGreat: The question at the top of this thread is “If the expected growth rate in dividend yield increased by 75 points, which of the following would benefit the most, an investor who:” Your question in the thread you posted: “The answer says that if the growth rate in dividends for stocks increases, the long futures contract is worth more.” two different questions, the question in this thread is about dividend YIELD (1-b)increasing, yours is about dividend GROWTH (g) increasing. If you look at the formula for valuing a future contract on stock indices, you discount by the dividend yield. Therefore, if dividend yield is higher, the value of the future is lower, benefiting the short position.
Dividend yield is not 1 - b, that’s the payout ratio. Dividend yield is that delta greek letter.
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Lower futures value benefits the short position?! I though lower futures value means you contracted to buy/sell the asset at a lower price in future, which is beneficial if you’re the long position aka. gonna buy the underlying.
CFAtime Wrote: ------------------------------------------------------- > Lower futures value benefits the short position?! > > I though lower futures value means you contracted > to buy/sell the asset at a lower price in future, > which is beneficial if you’re the long position > aka. gonna buy the underlying. This means that the price “long” agreed on is higher than the price right now. So it is a loss to the “long” since he could have purchased it at a lower price. If it is a loss to long, it will be a gain/benefit to “short” (zero sum game). That is what he means.
that’s right, the question here is not very clear, but the assumption is that the futures was entered into, and then the div yield increased. So the future price is now lower, benefitting the short.
This is my first thread that generates that much interest… so it’s an accomplishment for me! 
I thought it’s A. Schweser says it’s B. I thought that Because the formula for Futures Index on Equity is F = So x e (Rf - Div)^T I thought that if Div increases, the exponent part decreases, and hence F decreases. So a short the futures benefits. Schweser says it’s B as the spot price will increase to account for the dividends which I also see it happening. One reason why I see Schweser’s point is that index price (So) adjust UP by the FULL amount of the dividend, while the exponent part adjusts DOWN by the present value of the future dividends. I wanted to do more diligence on this, but time isn’t on my side.
does the Schweser question state Dividend Growth or Dividend Yield as you originally state?
It states Dividend growth. Which in my mind assumed that it would lead to higher dividend yield. Is that incorrect?
This is a BS question. A & B both benefit, depending on whether you’re talking about price or value.
reebs81 Wrote: ------------------------------------------------------- > This is my first thread that generates that much > interest… so it’s an accomplishment for me! > > I thought it’s A. Schweser says it’s B. > > I thought that Because the formula for Futures > Index on Equity is F = So x e (Rf - Div)^T > > I thought that if Div increases, the exponent part > decreases, and hence F decreases. So a short the > futures benefits. > > Schweser says it’s B as the spot price will > increase to account for the dividends which I also > see it happening. One reason why I see Schweser’s > point is that index price (So) adjust UP by the > FULL amount of the dividend, while the exponent > part adjusts DOWN by the present value of the > future dividends. I wanted to do more diligence > on this, but time isn’t on my side. Could you reference to the exact schweser question? (page, question)
nope, higher div growth would lead to higher stock price (on a pure formula basis) which would lead to lower div yield (all else equal) which leads to higher future price. you stated div yield growth, which is why everyone is confused vs the answer.
Mock Exam, Vol 2, Exam 2, PM, Q114.
Vindication! In yo face!