Question

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?

Answer 1

$1,356.44

Step-by-step explanation:

Computation for the value of one futures contract on the index

Using this formula

Futures contract =(Stock index value/(1+Risk-free rate)-Anticipated dividend

Let plug in the formula

Futures contract=$1,500/(1+0.0575) - $62

Futures contract=$1,500/(1.0575) - $62

Futures contract=$1,418.44 - $62

Futures contract=$1,356.44.

Therefore the value of one futures contract on the index will be $1,356.44.