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Suppose the value of the S&P 500 stock index is currently 2,000. a. If the 1-year T-bill rate is 3% and the expected dividend

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Answer #1

a]

Futures price = spot price * e(r - d)

where r = risk free rate

d = dividend yield

Futures price = 2000 * e(0.03 - 0.01)

Futures price = 2040.40

b]

If the T-bill rate is less than the dividend yield, then futures price should be lower than 2000

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