Given a stock index with a value of $1,100, an anticipated dividend of $27, and a risk-free rate of 3%, what should be the value of one futures contract on the index?

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Quizplus · Accepted Answer

The value of a futures contract on a stock index can be calculated using the formula: $Futures\ Price = (Spot\ Price - Dividend) \times e^{(r \times t)}$, where $e$ is the base of the natural logarithm (approximately 2.71828), $r$ is the risk-free interest rate, and $t$ is the time to maturity of the contract in years. Assuming the time to maturity is one year for simplicity (since it's not specified), the calculation would be: $(1100 - 27) \times e^{(0.03 \times 1)} = 1073 \times e^{0.03} = 1073 \times 1.03045453395 \approx 1106$. Therefore, the value of one futures contract on the index should be approximately $1,106.

Given a Stock Index with a Value of $1,100, an Anticipated