Given a stock index with a value of $1,500, an anticipated dividend of $62 and a risk-free rate of 5.75%, what should be the value of one futures contract on the index?
A) $1,343.40
B) $62.00
C) $1,418.44
D) $1,524.25

Question

Quizplus · Accepted Answer

The value of a futures contract on a stock index can be calculated using the formula: Futures Price = (Spot Price - Dividend) * e^(r*t), where e is the base of the natural logarithm, r is the risk-free interest rate, and t is the time to maturity (assuming t=1 for simplicity). In this case, since no specific time to maturity is given, we simplify the calculation by adjusting the spot price for the dividend and then applying the risk-free rate over a one-year period. Therefore, the calculation is: (1500 - 62) * (1 + 0.0575) = 1438 * 1.0575 = $1,524.25.

Given a Stock Index with a Value of $1,500, an Anticipated