Question

The risk-free rate of interest is 7% per annum with continuous compounding, and the dividend yield on a stock index is 3.2% per annum. The current value of the index is 150. What is the six-month futures price?

Answer 1

The six-month futures price is $152.88

Step-by-step explanation:

Asset Price Sо = $150

Time T= 6/12 = 0.5

Risk free interest rate = 7%

Dividend yield = 3.2%

Fо = Sо e^(r-q)*r

Fо = $150 e^(0.07-0.032)0.07

Fо = $150 e^(0.038)0.07

Fо = $150 e^(0.019)

Fо = $152.8772

Fо = $152.88