Given a stock index with a value of $1,200, an anticipated dividend of $45, and a risk-free rate of 6%, what should be the value of one futures contract on the index?
A) $1,227.00
B) $1,070.00
C) $993.40
D) $995.09
E) $1,000.00

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. Assuming T is 1 year for simplicity, and converting the dividend to a yield (q = 45/1200 = 0.0375 or 3.75%), the calculation is: 1200 * e^(0.06 - 0.0375) * 1 = 1200 * e^(0.0225) ≈ $1,227.00.

Given a Stock Index with a Value of $1,200, an Anticipated