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Consider a futures contract on an equity index. You have the following data. The equity index...

Consider a futures contract on an equity index. You have the following data. The equity index has an annualized, continuously compounded dividend yield of 2.46%. The futures contract expires in 7 months. The risk-free rate of interest with continuous compounding is 2.8% per annum. The spot market value of the index is 36.4. What is the no-arbitrage futures price of this equity index futures contract?

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Answer #1

Current Index Value = S = $ 36.4, Risk-Free Rate = Rf = 2.8% per annum, Dividend Yield = d = 2.46 % and Tenure = 7 months

Therefore, No Arbitrage Futures Price = S x e^[(Rf - d) x Tenure in Years] = 36.4 x e^[(0.028-0.0246) x (7/12)] = $ 36.4723 ~ $ 36.5

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