1. Donna Doni, CFA, wants to explore potential inefficiencies in the futures market. The TOBEC stock index...
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1. Donna Doni, CFA, wants to explore potential inefficiencies in the futures market. The TOBEC stock index has a spot value of 185. TOBEC futures contracts are settled in cash and underlying contract values are determined by multiplying $100 times the index value. The current annual risk-free interest rate is 6.0%.
a. Calculate the theoretical price of the futures contract expiring 6 months from now, using the cost-of-carry model. The index pays no dividends.
The total (round-trip) transaction cost for trading a futures contract is $15.
b. Calculate the lower bound for the price of the futures contract expiring 6 months from now.
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Kirti Kaushal
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