The one-year futures price on a particular stock-index portfolio is 1,710, the stock index currently is...
The one-year futures price on a particular stock-index portfolio
is 1,710, the stock index currently is 1,700, the one-year
risk-free interest rate is 2.0%, and the year-end dividend that
will be paid on a $1,700 investment in the index portfolio is
$16.
By how much is the contract mispriced? (Input the amount as positive value.)
The futures price is $
Homework Answers
Actual index future price = $ 1710
Index Spot price = 1700
Risk free rate = 2.0%
Dividend on index = $ 16
Therefore, Arbitrage free future price = spot x (1+risk free rate) - dividend
Arbitrage free future price = 1700 x (1+2%) - 16
Arbitrage free future price = $ 1718
Actual index future price = $ 1710
Therefore future is mispriced by $8 (it is underpriced by $8)
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