Consider an asset that has a continuously compounded dividend yield of $\delta$ = 0.03 per year,which is reinvested back into the asset.Then,a unit investment in the asset today grows after ten months to:

Question

Consider an asset that has a continuously compounded dividend yield of $\delta$  = 0.03 per year,which is reinvested back into the asset.Then,a unit investment in the asset today grows after ten months to:

Quizplus · Accepted Answer

Using the continuously compounded dividend yield, we can find the dividend payment over the ten-month period as follows:

F1 = S0e^(δt) = S0e^(0.03 x 10/12) = 1.015S0

Since the dividend is reinvested back into the asset, it will also grow at the continuously compounded rate, giving:

F2 = F1e^(δt) = F1e^(0.03 x 2/12) = 1.0253S0

Therefore, a unit investment in the asset today will grow to 1.0253 units after ten months. So the correct answer is C.

Consider an Asset That Has a Continuously Compounded Dividend Yield δ\deltaδ

Consider an Asset That Has a Continuously Compounded Dividend Yield $\delta$