Suppose that the current level of the Standard & Poor's Index is 500. The prospective dividend yield on S&P 500 stocks is 2 percent, and the risk-free interest rate is 6 percent. What is the value of a one-year futures contract on the index? (Assume all dividend payments occur at the end of the year.)
A)530
B)520
C)540
D)560

Question

Quizplus · Accepted Answer

The formula for futures price is F = S * (1 + r - d)^t, where F is the futures price, S is the spot price, r is the risk-free interest rate, d is the dividend yield, and t is the time to delivery. Plugging in the given values, we get F = 500 * (1 + 0.06 - 0.02)^1 = 520. Therefore, the value of a one-year futures contract on the index is $520.

Suppose That the Current Level of the Standard & Poor's