Question: Donna Doni, CFA, wants to explore potential inefficiencies in the futures market. The TOBEC stock index has a spot value of 185. TOBEC futures contracts

Donna Doni, CFA, wants to explore potential inefficiencies in the futures market. The TOBEC stock index has a spot value of 185. 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%.

a. Calculate the theoretical price of the futures contract expiring 6 months from now, using the cost-of-carry model. The index pays no dividends. The total (round-trip) transaction cost for trading a futures contract is $15.

b. Calculate the lower bound for the price of the futures contract expiring 6 months from now.

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