Suppose That the Current Level of the Standard & Poor's

question 67

Multiple Choice

Suppose that the current level of the Standard & Poor's Index is 500. The prospective dividend yield on S&P 500 stocks is 2 percent, and the risk-free interest rate is 6 percent. What is the value of a one-year futures contract on the index? (Assume all dividend payments occur at the end of the year.)

• A)530
• B)520
• C)540
• D)560

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Definitions:

Fixed Assets

Long-term tangible assets that are used in the operations of a business and are not expected to be consumed or converted into cash in the near term.

Net Present Value

The disparity in present values of cash inflows versus cash outflows within a certain time span.

Equity Shares

Represent ownership shares in a company, giving shareholders voting rights and a claim on company profits in the form of dividends.

Price-Earnings Ratio

A metric used to value a company by comparing its current stock price to its earnings per share.