The Spot Price of the Market Index Is $900

question 21

Multiple Choice

The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. The market index rises to $920 by the expiration date. The annual rate of interest on treasuries is 4.8% (0.4% per month) . What is the difference in the payoffs between a long index investment and a long forward contract investment? (Assume monthly compounding.)

• A) $10.84
• B) $19.16
• C) $26.40
• D) $43.20

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Definitions:

Reaction

A process in which substances interact to form one or more new substances with different properties.

β-lactams

A class of antibiotics that include penicillins, characterized by a four-membered lactam ring.

Penicillins

A group of antibiotics derived from Penicillium fungi, effective against a wide range of bacterial infections by inhibiting cell wall synthesis.

Cephalosporins

A class of β-lactam antibiotics derived from Acremonium, which are effective against a wide range of bacterial infections.