D & R A1 3 -1 Question 3. Stock Futures with Dividends Today is January 3. Your friend David has just bought a futures contract on a stock index, and the contract specifies one year to expiration. The...

D & R A1 3 -1

Question 3. Stock Futures with Dividends

Today is January 3. Your friend David has just bought a futures contract on a stock index, and the contract specifies one year to expiration. The current share price is $80, and the annually compounded interest rate is 10%. The stock will pay quarterly dividends of $2 during the next year, with dividends payments on the following dates:

• January 25


• April 25


• July 25


• October 25

Assume that this is a non-leap year.

1. What is the futures price on this contract on January 3?