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

question 6

Multiple Choice

Suppose that the current level of the S&P 500 Index is 1,100. The prospective dividend yield is 3 percent, and the current risk-free interest rate is 7 percent. 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)1,056
• B)1,144
• C)1,210
• D)995

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Definitions:

Arithmetic Average Return

The simple average of a series of returns generated over a period of time.

Variance

A statistical measurement of the dispersion of returns for a given security or market index, indicating volatility.

Time Horizon

The length of time over which an investment is expected to be held or a financial goal is to be achieved.

Standard Deviation

A measure of the dispersion or variability in a dataset, commonly used in finance to assess the volatility of an asset's returns over time.