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In the futures market, if the futures price exceeds the spot price the market is said to exhibit contango .If the futures price is below

In the futures market, if the futures price exceeds the spot price the market is said to exhibit contango.If the futures price is below the spot price, the market is said to exhibit backwardation. In class we explained this to be a function of cost-of-carry for financial futures.Assuming the borrowing rate is 3.00%, dividends on the S&P 500 are 2.50% and U.S. Treasury bonds have a yield of 3.80%, what would be the expected relationship between the futures and spot markets for the S&P 500 futures contract and the U.S. Treasury bond contract?

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