USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The S&P 500 stock index is at 1100. The annualized interest rate is 3.5 percent, and the annualized dividend is 2 percent.
-Refer to Exhibit 15.9. Calculate the price of the futures contract now.
A) 1108.59
B) 1102.75
C) 1139.79
D) 1123.19
E) 1350.15

Question

Quizplus · Accepted Answer

Using the formula: 
Futures Price = Current Stock Price x e^(rT) - (Dividend Yield x Stock Price x T)

Where: 
r = annualized interest rate 
T = time to expiration (assumed as 1 year)

We can calculate: 
Futures Price = 1100 x e^(0.035 x 1) - (0.02 x 1100 x 1) 
Futures Price = 1100 x 1.035 - 22 
Futures Price = 1102.75

Therefore, the answer is B, 1102.75.