The current level of Standard & Poor's index is 500. The prospective dividend yield is 2%, and the interest rate is 6%. 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) None of the above

Question

Quizplus · Accepted Answer

To calculate the futures price, we use the formula: Futures price = Spot price x (1 + interest rate - dividend yield)^time

Substituting the given values, we get: 
Futures price = 500 x (1 + 0.06 - 0.02)^1
Futures price = 500 x 1.04
Futures price = 520

Therefore, the value of a one-year futures contract on the index is 520. Option B is the correct choice.

The Current Level of Standard & Poor's Index Is 500