The Risk-Free Rate Is 5% and the Dividend Yield on an Index

question 14

Multiple Choice

The risk-free rate is 5% and the dividend yield on an index is 2%. Which of the following is the delta with respect to the index of a one-year futures on the index?

• A) 0.98
• B) 1.05
• C) 1.03
• D) 1.02

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Definitions:

Variable Manufacturing Overhead

Costs of manufacturing that vary directly with the level of production, such as raw materials or labor costs.

Fixed Manufacturing Overhead

Costs associated with production that do not vary with the level of output, such as rent and salaries of managers.

Variable Overhead

Costs that change in proportion to the level of production or activity within a business.

Direct Materials

Raw materials directly used in the manufacturing of a product, which can be directly attributed to the finished product.