Suppose that the current level of the S&P 500 Index is 1100.The prospective dividend yield is 3%,and the current risk-free interest rate is 7%.What is the value of a one-year futures contract on the index? (Assume all dividends are paid at the end of the year.)
A)1056
B)1144
C)1210
D)995

Question

Quizplus · Accepted Answer

The formula for the futures price is:
Futures price = Spot price * (1 + risk-free rate - dividend yield) ^ time to maturity

Plugging in the given values, we get:
Futures price = 1100 * (1 + 0.07 - 0.03) ^ 1
Futures price = 1144

Therefore, the value of a one-year futures contract on the index is $1144. Answer choice B is the correct option.

Suppose That the Current Level of the S&P 500 Index