Given a Stock Index with a Value of $1,100, an Anticipated

question 23

Multiple Choice

Given a stock index with a value of $1,100, an anticipated dividend of $27, and a risk-free rate of 3%, that should be the value of one futures contract on the index

• A)$943.40
• B)$970.00
• C)$913.40
• D)$1,106.00
• E)$1,000.00

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Definitions:

Derivative Fair Value

The current market value of a derivative financial instrument, reflecting potential gains or losses if it were closed out.

Comprehensive Income

Comprehensive Income includes all changes in equity of a company during a period from transactions and other events, excluding transactions with owners.

Call Option

A financial contract giving the holder the right, but not the obligation, to buy a specified quantity of an asset at a predetermined price within a specified time frame.

Cash Flow Hedge

A financial strategy used to manage risks associated with fluctuations in cash flows by using a hedge instrument to offset potential losses or gains.