A Index has currently a value of $10,000, and pays a dividend yield of 3%. What should be the price of a futures contract on the index for delivery in 1 year and what for delivery in 2 years? Futures Prices = Spot price* (1+r-d) (r= interest rate, d= dividend yield) One year futures price: F=10000*(1+.09-.03)= $10600 Two year futures price: F= 10000* (1+.09-.03)^2= $11236 After performing the calculations we determined that a fair futures price for an index with a PV of $10,000 and a dividend yield of 3% and a delivery date of one year is worth $10,600, and the fair price for a two year delivery is worth $11,236 FUTURES PRICES
A Index has currently a value of $10,000, and pays a dividend yield of 3%. What should be the price of a futures contract on the index for delivery in 1 year and what for delivery in 2 years? Futures Prices = Spot price* (1+r-d) (r= interest rate, d= dividend yield) One year futures price: F=10000*(1+.09-.03)= $10600 Two year futures price: F= 10000* (1+.09-.03)^2= $11236 After performing the calculations we determined that a fair futures price for an index with a PV of $10,000 and a dividend yield of 3% and a delivery date of one year is worth $10,600, and the fair price for a two year delivery is worth $11,236 FUTURES PRICES
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A Index has currently a value of $10,000, and pays a dividend yield of 3%. What should be the price of a futures contract on the index for delivery in 1 year and what for delivery in 2 years?
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Make a graph that shows the spot price and the one year price
Transcribed Image Text:A Index has currently a value of $10,000, and pays a dividend yield of 3%.
What should be the price of a futures contract on the index for delivery in
1 year and what for delivery in 2 years?
Futures Prices = Spot price* (1+r-d) (r= interest rate, d= dividend yield)
One year futures price: F=10000*(1+.09-.03)= $10600
Two year futures price: F= 10000* (1+.09-.03)^2= $11236
After performing the calculations we determined that a fair futures
price for an index with a PV of $10,000 and a dividend yield of 3% and a
delivery date of one year is worth $10,600, and the fair price for a two
year delivery is worth $11,236
FUTURES PRICES
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