Given a Stock Index with a Value of $1,500, an Anticipated

question 19

Multiple Choice

Given a stock index with a value of $1,500, an anticipated dividend of $62 and a risk-free rate of 5.75%, what should be the value of one futures contract on the index?

• A) $1,343.40
• B) $62.00
• C) $1,418.44
• D) $1,524.25

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Definitions:

Payoffs

The outcomes or returns from an action or investment, notably used in the context of game theory to represent the consequences faced by participants.

Short Run

In economics, a period during which at least one of a firm's inputs is fixed, limiting its capacity to adjust to changes in demand.

Long Run

A period in which all factors of production and costs are variable, allowing for full adjustment to change.

Marginal Revenue

The additional income gained from selling one more unit of a product or service.