Donna Doni, CFA, wants to explore inefficiencies in the futures market. The TOBEC stock index has a spot value of 185 now. TOBEC futures 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 percent.
a. Calculate the theoretical price of the futures contract expiring six months from now, using the cost-of-carry model.
b. The total (round-trip) transaction cost for trading a futures contract is $15. Calculate the lower bound for the price of the futures contract expiring six months from now.