CFA Examination Level II Donna Doni, CFA, wants to explore potential inefficiencies in the futures market. The TOBEC stock index has a spot value of XXXXXXXXXXnow. TOBEC futures contracts are settled...

CFA Examination Level II

Donna Doni, CFA, wants to explore potential inefficiencies in the futures market. The TOBEC stock index has a spot value of 185.00 now. 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 percent.

a. Calculate the theoretical price of the futures contract expiring six months from now, using the cost-of-carry model. Show your calculations.

The total (round-trip) transaction cost for trading a futures contract is $15.00.

b. Calculate the lower bound for the price of the futures contract expiring six months from now. Show your calculations.