Given a stock index with a value of $1,125, an anticipated dividend of $33, and a risk-free rate of 4%, what should be the value of one futures contract on the index?

Question

Quizplus · Accepted Answer

The value of a futures contract on a stock index can be calculated using the formula: Futures Price = Spot Price * e^(r - q)T, where r is the risk-free rate, q is the dividend yield, and T is the time to maturity. However, since we are not given T (time to maturity) and the dividend is a dollar amount rather than a yield, we simplify the calculation by adjusting the spot price for the dividend and then applying the risk-free rate. The adjusted spot price is $1,125 - $33 = $1,092. The future value of this adjusted spot price at the risk-free rate of 4% (assuming T = 1 for simplicity or any time period since it's not specified) is approximately $1,092 * (1 + 0.04) = $1,137. Therefore, the value of one futures contract on the index should be approximately $1,137.00.

Given a Stock Index with a Value of $1,125, an Anticipated