Question #76
Reading: Reading 30 Pricing and Valuation of Forward Commitments
PDF File: Reading 30 Pricing and Valuation of Forward Commitments.pdf
Page: 31
Status: Unattempted
Question
An index is currently 876, the risk-free rate (Rf) is 7%, and the dividend yield on the index portfolio is 1.8%. Assuming that these are continuously compounded yields, the price of an 18-month index future is closest to:
Answer Choices:
A. 947.1
B. 943.0
C. 945.2
Explanation
FP = 876 e(0.07-0.018)1.5 = 947.1.