1. Consider a 3 month futures contract on S&P 500. Stocks underlying the index have dividend yield of 1% per annum. Current value of the index is $1,300 and interest rate is 5% per year compounded continuously. What is the appropriate value of the futures price?
2. The Treasury Bond futures price is 103.5. Which of the following four bonds is cheapest to deliver ?
Bond 1: Quoted price = 110; conversion factor = 1.0400.
Bond 2: Quoted price = 160; conversion factor = 1.5200.
Bond 3: Quoted price = 131; conversion factor = 1.2500.
Bond 4: Quoted price = 143; conversion factor =1.3500