please do part B in 17 minutes will upvote A stock index is computed...
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please do part B in 17 minutes will upvote
A stock index is computed as the price weighted average of three stocks, A, B and C. A fut ures contract trades on the index. The contract settles in 60 days. Current interest rate is 10%. The following information is available: A B Price $40 $35 $24 Shares outstanding (millions) 1 2 2 Market Value (millions) $40 $70 $50 Dividend $0.50 $0.50 $ - Time to Dividend 15 days 20 days Assume there are 365 days in a year. 1 (a) Find the value of the index I(t) at time 0. [1] (b) Calculate the theoretical futures price on the index. Hint: The price of futures/forward is comparable to the index value.
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